Legg Mason has launched a global infrastructure income fund to be managed by RARE Infrastructure (‘RARE’), the group’s Sydney-based specialist asset manager. The Fund will aim to provide an attractive income and a total return well above global inflation.
Launched to meet UK client demand for a high yielding fund with low volatility characteristics, the Legg Mason IF RARE Global Infrastructure Income Fund will target a high level of income, expected to be c.5% p.a., and a real total return of G7 inflation plus 5.5% p.a., over a market cycle. Offering portfolio diversification through a low correlation to traditional asset classes, the portfolio will leverage RARE’s proven expertise and long-term cashflow valuation approach.
Focusing solely on the listed infrastructure universe, the fund holds between 30-60 infrastructure equities selected from the RARE 200 and RARE EM 150 universe. Stocks are selected based on their risk adjusted return to equity, calculated by looking at both their expected return over the next five years and the required return.
Managed by RARE’s co-CEO and CIOs Nick Langley and Richard Elmslie, alongside senior investment analysts and portfolio managers Shane Hurst and David Maywald, the fund combines bottom-up stock picking with top-down macro analysis.
The fund will primarily invest in providers of ‘essential services’ such as water, gas, and electricity companies, which are less sensitive to macro shocks. It will hold 50–90% in regulated utilities, up to 45% in transport assets and up to 20% in communications assets, as well as up to 20% in companies focused on community/social infrastructure.
In terms of regions, the fund will predominantly own stocks listed in European and North American markets, as well as developed markets in the Asia Pacific region, with exposure to developing countries limited to a maximum of 20%.
Commenting on the launch Nick Langley, co-CEO and CIO of RARE, says:
“The fund offers investors both income and real diversification from other asset classes. In the current environment it can be tough for investors to generate an income, with cash paying next to no yield and government bonds also seeing yields squeezed. By taking an approach which focuses on companies with strong and secure cash flows and by using only listed securities from around the globe, we believe this fund can provide a compelling blend of both income and capital growth.”
Adam Gent, Head of UK Sales at Legg Mason, says:
“The enthusiasm from clients for us to proceed with the launch of the fund as planned following the Brexit vote has highlighted the demand for investment opportunities that complement their portfolios. We had over £26 million in assets under management invested at launch, as well as strong interest in the upcoming sterling-hedged share class. The fund will allow UK based clients to buy into a diversified set of infrastructure companies that offer dependable cash flows and revenue streams. Ultimately, the fund will allow clients to access a globally diverse, defensive, income orientated equity product which can helps solve some of the problems they face when building out their own client portfolios.”
A number of share classes will be available at launch, plus Legg Mason will launch a sterling-hedged share class later this month, which has already seen significant investor interest.