Infrastructure manager launches unhedged option as USD rallies
Markets are on the rebound from last week’s hefty losses which came on the back of hawkish Federal Reserve commentary. The recovery is also hoping that this week’s Fed’s speakers aren’t as hawkish as the dot plot suggests. The dot plot indicates the high probability of an interest rate rise in 2023, a year earlier than expected.
What does this mean to the Aussie dollar?
At the time of writing, the AUD has fallen rather hard-hitting A$0.75. The dollar has been whipsawing in the same way every other asset class has moved following Federal Reserve commentary. All of that being said, a projected hike in US interest rates and an end to emergency bond-buying sooner than expected will send the USD higher and the AUD lower. The fall in the AUD may not be fully justified because commodity prices remain at elevated levels. For now, risk aversion and Fed repricing are the dominant force in foreign exchange markets.
Global asset manager ClearBridge Investments (previously RARE Infrastructure), part of Franklin Templeton, has announced the launch of an additional fund to their suite of global listed infrastructure strategies.
They have introduced an unhedged version of the high performing ClearBridge RARE Infrastructure Income Fund. The reason for the unhedged version is due to its overseas investments being exposed to fluctuations in the Australian dollar. When an overseas portfolio is fully hedged, the investment manager is using strategies to offset the impact of currency fluctuations, such as the recent fall in the AUD to A$75 from A$0.77.
The asset manager says, “both ClearBridge RARE Infrastructure Income Funds – Hedged and Unhedged – aim to provide investors with long-term inflation-linked capital growth over an economic cycle with a focus on providing reliable income targeting 5% p.a., net of fees. This is achieved by investing in a range of global listed infrastructure securities such as gas, electricity and water utilities, renewables, toll-roads, airports, rail and communication infrastructure, all of which traditionally exhibit predictable income streams and income growth.”
The fund is structured to give investors a lower beta, defensive tilt which is correlation to global equities but also offers the benefit of diversification. It looks to outperform the OECD G7 Inflation Index by 5.5% p.a. over five years, net of fees. So far, fund has returned:
- In the 12 months to May 31, 2021 the hedged version has returned more than 14.2% p.a. and has posted an annual average return since inception in 2009 of 11.2% p.a beating the benchmark by 4.4% p.a.
ClearBridge Investments Portfolio Manager Charles Hamieh said: “The decision to create an unhedged version of the popular infrastructure income fund reflects feedback from both institutional and retail investors who demanded greater choice and flexibility to invest in our funds and traditionally manage their own currency risk.”
The new unhedged fund has a minimum investment of $20,000 AUD and is accessible via most major investment platforms used by the advisory industry. The fund will typically invest in 30 to 60 stocks spread across geographic regions both in the developed and emerging markets.”
The top five stock holdings at present are:
- Atlas Arteria (Asia Pacific, Toll Roads)
- Exelon Corp (US Electric)
- Clearway Energy (US/Canada, Renewables)
- SSE (Western Europe, Electric)
- Sydney Airport (Asia Pacific, Airports)
The Fund’s value strategy May commentary highlighted the continued success of COVID-19 vaccine rollouts gaining pace on a global level and “economic activity continued to rebound strongly during the month with ongoing and significant upgrades to consensus earnings and economic growth forecasts.”
With that in mind, the Fund has a major focus in carbon emissions and climate change. The team incorporate climate change into their analysis of companies and into research across sectors. The portfolios do not simply avoid certain industries; they integrate industry specific ESG factors into their fundamental research process.
The ClearBridge RARE Infrastructure Income Fund was a winner at the 2020 Zenith Fund of the Year
Awards and the 2021 Money Management Fund Manager of the Year for Infrastructure Securities.