“We are bringing scale and efficiency benefits to investors by removing performance fees from the RARE Infrastructure Value Funds, both the ‘Hedged’ and the ‘Unhedged’ variants, effective July 1, 2020,” said Steve Williams, Head of Australian Intermediary Sales at RARE.

The other change to investor expenses involves a reduction in the buy/sell spreads on RARE’s three listed infrastructure funds.

The new spreads for the RARE Infrastructure Income and Value – Hedged and Unhedged Funds are: buy 0.12% / sell 0.05%.  A reduction of 0.08% and 0.10% respectively. While the RARE Emerging Markets Fund has reduced to 0.14% / 0.17%.

“Additionally, we have introduced new sector designations for both Renewables and Energy Infrastructure,” said Williams.

“These changes are designed to enhance the granularity of reporting and to reflect developments and expected growth within the infrastructure asset class. Importantly, these changes do not impact the way RARE constructs its investable universe or its investment processes,” said Williams.

“For Australian investors, it is worth noting that global listed infrastructure stocks can provide an attractive source of income in the current environment and have a low correlation to domestic equities and global bonds. This makes them an ideal vehicle to provide portfolio diversification. Regulation and long-term contracts generally offer stable cash flow and greater capital stability.

“We continue to believe that this is a time when select listed infrastructure can significantly fortify an individual or SMSF portfolio on the basis that certain infrastructure assets can be shown to offer significant downside protection” added Williams.

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Nick O’Hare has been appointed as Business Development Manager for Victoria and Tasmania, based in RARE’s Melbourne office.

With over six years of experience in the financial planning and investment industry, Mr O’Hare, a qualified financial adviser, was most recently Manager of Investments and Business Development at Power Wrap, a boutique administration platform. Prior to that, he was a financial adviser with Income Solutions, a financial advisory firm.

Steve Williams, Head of Australian Retail at RARE Infrastructure said “We are excited to have a person of Nick’s calibre and background join the RARE distribution team as we continue to see financial advisers increase allocations to infrastructure. Investors are looking for ways to reduce some of the risk in equites while still participating in listed markets.

“Advisers are recognising the long-term benefits of investing in monopolistic, long dated assets with a history of paying consistent dividends through the economic cycle,” he said.

Mr O’Hare will be responsible for supporting financial planners with RARE’s extensive infrastructure product offering to meet the growing demand in infrastructure investing.

“Listed infrastructure, with its signature characteristics of low volatility and predictable earnings stream, is an asset class that ticks the defensive box,” noted Mr Williams.

Hamish Bell has also joined RARE as an Investment Specialist to provide investment expertise and technical sales support to RARE’s distribution team. Mr Bell was most recently a senior member of the research team at Clearview.

“These new appointments show our continued commitment to servicing the Australian market, and we are pleased to attract such experienced and talented professionals,” added Mr Williams.

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This issue has had plenty of airplay since December last year, when the US Federal Reserve raised its target funds rate by 25 basis points. The Fed raised rates again in March and in June.

“You have to look at what is causing rates to go up says Steve Williams, RARE Infrastructure’s Head of Australian Retail. If they are being driven up by increased economic activity, user-pays assets can benefit.

“For example, as economies grow, rail companies will benefit as they are required to move more goods across their networks, and this will offset the impact of the rise in interest rates.”

“The important question is whether the underlying cash flows from the infrastructure business are impaired in a rising rate environment.”

Investment management researcher Morningstar supports this view. In a recent report, it pointed to the fact that the S&P Global Infrastructure Index has risen more than 10 percent over the past 12 months, despite the Fed’s tightening of monetary policy.

“One reason for this is that rising interest rates may be an indication of a growing economy. Infrastructure companies that are linked to consumer behaviour usually benefit from increased demand,” Morningstar says.

History has shown that global listed infrastructure securities can perform well after an interest rate hike. Long-term expectations of future interest rate rises will often be incorporated in bond pricing well ahead of the actual rate decision.

“At RARE, we seek an infrastructure return rather than an equity return, so a total return of 8 to 10 percent is a more realistic target through a cycle” commented Williams.  “All of our four funds are benchmark unaware and have an absolute return focus.”

There are a couple of local listed infrastructure companies in the fund, including Spark Infrastructure, which holds a portfolio of electricity, gas, water and sewerage businesses, and AusNet Services, an electricity transmission company.

“The companies we invest in must meet three key criteria explained Williams: “Firstly, the asset that the company owns must be a hard, physical asset. Secondly, this hard asset must provide an essential service to society or an economy, and finally, there must be robust frameworks in place to ensure that we, the equity holders of these companies, get paid. This framework can be regulatory in nature or based on long-term concessional contracts. Both structures provide visibility over the company’s ability to generate cash flow”.

“Most regulators allow utility operators to pass on the rise in the cost of capital, so rising rates do not have a major impact on the long-term valuation of assets. However, when rates do rise shorter term share market investors tend to reduce their utility holdings. As long-term investors, RARE views rising interest rates as an opportunity to buy solid companies with attractive cash flows.  We saw this play out in 2016.”

RARE infrastructure was established in 2006 and offers Australian investors four funds all investing in global listed infrastructure assets;

• The RARE Infrastructure Value Fund – Hedged (ARSN: 121 027 709)
• The RARE Infrastructure Value Fund – Unhedged (ARSN: 150 677 017)
• The RARE Infrastructure Income Fund (ASRN: 132 182 631)
• The RARE Emerging Markets Fund *ASRN: 132 182 462)

As global investors, there is greater opportunity and flexibility when investing in listed companies, as not all markets have simultaneously rising rates or may be in a different part of their economic cycle.

The RARE Infrastructure Income Fund, which targets a net distribution yield of +5 percent a year, produced an income of 5.2 percent over the 12 months to the end of August 2017 and a total return of 14.1 percent.

Over a five-year period, the Fund delivered 13.3% net of fees.*

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 *Past performance is not a reliable indicator of future performance.

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