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RARE Emerging Markets Infrastructure Fund rating unaffected after hedging change

05 Mar 2012
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Standard & Poor’s Fund Services announced that there would be no change to the three-star rating on the RARE Series Emerging Markets Infrastructure Fund. This follows a change in hedging policy.

Previously, offshore currency exposures within the fund were unhedged. Effective Feb. 14, 2012, the fund manager (RARE Infrastructure) may elect to adjust the fund’s emerging-markets currency positioning through the use of short-term (i.e. generally less than six months) forward foreign exchange and other derivative contracts. The hedging decisions will be made by the emerging-markets portfolio-management team, comprising Richard Elmslie, Nick Langley, and Charles Hamieh, and executed by trader, Tim Snelgrove.

The change will not result in emerging-market currency exposures being hedged back to A$ or any other developed-market currencies. Rather, it will provide RARE with the flexibility to reduce exposure to single emerging-market currencies without the need to sell underlying securities. We view this as being consistent with the manager’s predominantly bottom-up investment approach.

While this change has the potential to reduce single-currency exposure, as well as the volatility of capital returns, a side effect may be a more volatile dividend/income profile. This will depend on the extent and duration of currency hedging, as well as currency market volatility.

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