Why RSMR Rate this Fund

• Macquarie is a large global infrastructure manager with a network of infrastructure experts in close proximity to company management and assets around the world, giving it an unparalleled insight into local markets, government policy, competition, risks and opportunities.
• The fund is managed by a dedicated listed infrastructure team, who are very experienced, dispersed globally and have researched the companies in their investment universe for many years, giving them a deep knowledge of markets, assets and management teams.
• Companies which own and operate infrastructure assets tend to be in strong strategic positions and usually have very clear and formulaic inflation linked revenue streams. Prospective entrants face high barriers to entry.
• The fund managers specifically avoid investing in companies with exposure to short-term pricing fluctuations, notably commodity prices which can impact some energy infrastructure and utility companies.

Fund Process

The investment thesis is based on the belief that infrastructure is an under-researched and misunderstood area of global equity markets. Equity investors often overreact to short term news and do not recognise the long-term nature of the revenue streams generated by infrastructure companies. Short/medium term volatility may create mispricing opportunities for longer term investors.

Stock selection is largely via a bottom-up, fundamental valuation-based approach, that looks at a company on an asset-by-asset basis to identify opportunities. Analysis includes meeting with regulators and management teams, visiting assets, in-house macroeconomic views, Macquarie network and sell-side research. The team considers demand drivers and elasticity, strategic positioning, pricing structure, the regulatory framework, and cash flow stability and predictability. Long-term free cash flow forecasts are derived, and the fund managers determine whether a company is over or undervalued using a discounting rate comprising the local risk-free rate, an equity premium and modification based on gearing.

Evaluation

The nature of the investment process means the fund is most effective in market conditions where companies are being priced with greater reference to fundamentals than short term market sentiment. The managers comment that within their investment universe, cashflows tend to be stable, whilst share prices are not. The long-term nature of the cashflows should act to support valuations over time and provide an element of visibility not available within other industries. Since launch the Global Listed Infrastructure strategy has demonstrated resilience relative to global equities in down markets and is more likely to track the indices during positive benchmark monthly periods.

Application

The fund can act as a diversifier in portfolios and should over time be capable of reducing volatility, due primarily to its performance characteristics in falling markets. The long-term nature of the income streams of the fund’s underlying investments make it suitable as a strategic holding within portfolios rather than a short-term tactical position and it is useful as an ‘alternative’ asset or potentially as a substitute for a conventional equity fund in a lower risk portfolio.

Our Opinion

The scale and extent of Macquarie’s activity within the global infrastructure sector means their access to on the ground feedback and information is excellent within the infrastructure sector. The focus on pure infrastructure plays and the avoidance of ‘satellite infrastructure-linked’ activity brings a set of characteristics to the fund that provide diversification which is useful in portfolio construction. The management team is well established, experienced and knowledgeable and capable of applying historic perspectives to markets and economic conditions. We view this as a very ‘clean’ play on the infrastructure sector and one that is less prone to short term fluctuations in market sentiment. As such it can be a useful constituent in many investment portfolios.