In the first quarter of 2021, RARE Infrastructure will be changing its name to ClearBridge Investments Limited.

Infrastructure Index October Commentary

Overview of the fund

The RARE Global Infrastructure Index seeks to provide focused exposure to infrastructure companies by analysing the actual sources of corporate cash flows rather than high-level industry classifications.

Based on a proprietary methodology, this Index uses a dynamic process that re-weights between more growth-sensitive sectors and defensive sectors according to prevailing economic conditions.

The RARE Global Infrastructure Index methodology includes:

  1. Infrastructure Filter: The MSCI ACWI All-Cap Index is filtered to include companies within 13 GICS infrastructure sub-industries.

  2. Liquidity Filter: Companies are screened for a minimum of $500M market capitalisation and 1-year average daily value traded of $2M.

  3. RARE Exposure Score: Leverages publicly available financial data to score exposure to infrastructure and utilities — including only companies that meet RARE's criteria for infrastructure exposure, quality and focus.

  4. Dividend Yield and Cash Flow Yield Rank: Companies are ranked from highest to lowest dividend yield and cash flow yield. Lower-yielding companies are removed, and highest cash flow companies are added back after being screened for dividends.

  5. Index Weighting: Weighting determined quarterly by market capitalisation and free float (shares publicly available for trading), RARE exposure score, price volatility and region.

  6. Sector Weighting: On a quarterly basis, the OECD G7 Leading Economic Indicators Index (“LEI Index”) is used to establish weight between economically sensitive sectors and more regulated/defensive sectors. Exposure caps and minimums are put in place.

  7. Security Weighting: The Index’s securities are reconstituted and rebalanced quarterly.

 

Quarterly Highlights

  • During October, the RARE Global Infrastructure Index (USD) returned -3.5%, underperforming the S&P Global Infrastructure Index (USD) by 240 bps. The reason for the underperformance is the RARE Global Infrastructure Index’s relative overweight to North American and Japanese Rail.

  • At the end of the September quarter, the Index mix was allocated as 45% utilities and 55% economically sensitive assets. Due to market performance, the mix is now 54% utilities and 46% economically sensitive assets.

Top Contributors to Monthly Performance1

1.    National Grid, a U.K. gas utility (+0.12%)

National Grid is one of the world’s largest publicly owned utilities, focused on transmission and distribution activities in electricity and gas in both the United Kingdom and the United States. National Grid’s share price increased during October as a result of the positive read across for NG’s upcoming regulatory reset from the better than expected draft CMA ruling on UK Water allowed returns.

2.    Duke Energy, a U.S. electric utility (+0.11%)

Duke Energy (DUK) is among the largest electric power companies in the U.S., serving approximately 7.2 million customers in the Carolinas, the Midwest, and Florida, as well as natural gas distribution services in Ohio and Kentucky. DUK’s commercial business is invested in renewable generation. DUK held an investor update, where they increased their 5yr capital plan, driven accelerated clean energy investments.

3.    Exelon Corporation, a U.S. electric utility (+0.10%)

Exelon is a U.S. energy provider with one of the cleanest and lowest-cost power generation fleets. Its utilities serve millions of electric and gas customers. The share price of Exelon benefit from media reports of a potential business split along with a prominent activist investor disclosing stake in the company and noting valuation of ~$60.

Detractors from Monthly Performance1

1.    Central Japan Railway, a Japanese rail operator (-0.59%)

Central Japan Railway (JR Central) is a passenger railway company based in the Chubu region of central Japan. The company operates high-speed passenger trains (Shinkansen), linking Tokyo with Nagoya and Osaka, and a network of commuter lines centred in Nagoya. The share price of JR Central declined on increased concerns for passenger numbers due to Coronavirus.

2.   East Japan Railway, a Japanese rail operator (-0.55%)

East Japan Railway (JR East) is Japan’s largest passenger railway operator. Transporting 17 million passengers per day, JR East operates the Shinkansen highspeed rail lines north of Tokyo, as well as commuter trains within the Tokyo metropolitan network. The share price of JR East declined on increased concerns for passenger numbers due to Coronavirus.

3.    Canadian National Railway, a Canadian rail operator (-0.45%)

Canadian National (CNR) is the largest listed railroad in Canada. CNR’s network is highly extensive, spanning over 20,000 miles across Canada, the United States and into the Gulf of Mexico. The share price of CNR declined as the company’s quarterly results missed expectations.

1 All returns are in local currency.

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Disclaimer

1 All returns are in local currency.
2 All returns are in local currency.