RARE puts cash to work on airports and toll roads
RARE Infrastructure has added exposure to toll roads and airports in its infrastructure fund as some valuations are “too attractive to pass up”.
In a webcast, senior portfolio manager Charles Hamieh said he had been putting the fund’s cash to use by investing in toll roads and airports which was trading at valuations 50% lower than this time last year.
In its Infrastructure Income fund cash was around 3% while in the Infrastructure Value Hedged fund it was higher at 8%.
“We have taken the opportunity to reduce cash as we found opportunities presented themselves in toll roads where we saw valuations which were unwarranted, under any recovery scenario, and selective airports where we are comfortable with the financial situation and the cushion they have for long period of low revenue. The valuations were unjustified so took advantage and we increased exposure there,” he said.
“What is so important to note is these are very long-duration assets, some cases for as long as 80 years which is a long time to get it right. We are very comfortable we will go back to some normality, the resilience of cashflow will resume to some extent and the valuations we saw a month ago were not justified.”
He said the fund was defensively positioned, the same bias as before the pandemic, and that infrastructure continued to offer good diversification, a dividend and strong cashflows.
He said it was unsurprising these type of user-pays assets had struggled due to the pandemic as there was a dearth of users but he was optimistic for futures when normal service resumed.
“We have selectively increased exposure to the highest-quality businesses at valuations which were, in some cases, 50% lower than this time last year. The valuations point they were at was too attractive to pass up.
“The essential role things like toll roads play doesn’t change in a post-COVID world and there is a valuation you pay for the volatility COVID has introduced and a valuation you pay for the long-term impact on growth that COVID has introduced but you are more than rewarded to start increasing exposure.”
Both the RARE Infrastructure Income fund and RARE Infrastructure Value Hedged fund had outperformed the infrastructure sector over one year to 29 May, 2020.
According to FE Analytics, within the Australian Core Strategies universe, the income fund had returned 4.8% over one year and the Value Hedged fund had lost 1.6% compared to losses by the infrastructure sector of 2.1% over the same period.
Performance of RARE Infrastructure Income and Infrastructure Value Hedged versus infrastructure sector average over one year to 29 May 2020
AUTHOR
Laura Dew
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