RARE WEBINAR. Year ended 30 June RARE Infrastructure Limited ABN AFSL

Transcription

1 RARE WEBINAR Year ended 30 June 2017 RARE Infrastructure Limited ABN AFSL

2 Summary of key points No change in RARE s investment process Asset level focus long term cash flow based using long term cost of capital assumptions Infrastructure specialist process, NOT a global equity process No change in RARE s distinct view of infrastructure Hard Assets, Essential for society/economy, Revenue framework in place Exclude companies when: commodity exposure is unacceptable; asset light/service company; competition is high Benchmark unaware portfolio construction Aim to deliver an absolute return through a cycle distinct portfolios to deliver differentiated objectives Positioned down the risk/return spectrum since inception in

3 RARE Infrastructure products Performance as at 30 June month (%) 1 year (%) 3 year (%) 5 year (%) 7 year (%) RARE Funds and Benchmarks RARE Infrastructure Value Fund Hedged, AUD, Net RARE Infrastructure Value Fund Unhedged, AUD, Net RARE Infrastructure Income Fund, AUD, Net Benchmark: OECD G7 Inflation Index +5.5% RARE Emerging Markets Fund, AUD, Net Benchmark: Citi EM Sov Invest Bonds USD + 5% Infrastructure and Equity Indices S&P Global Infrastructure Index FTSE Global Core Infrastr 50/50 Index MSCI World Core Infrastructure Index DJ Brookfield World Infrastructure Index MSCI AC World Index MSCI Emerging Markets Index BENCHMARK: OECD G7 Inflation Index +5.5%, FactSet Research Systems (Index Code - CLIENT:BENCHMARK). S&P Global Infrastructure Index AUD Hedged, FactSet Research Systems (Index Code - SPAH_N:STRGLIFX) FTSE Global Core Infras 50/50 Net Index - Net, AUD Hedged, FactSet Research Systems (Index Code - FASFA_HAUD_NR:FGCIICU0) MSCI World Core Infrastructure 100% Hedged to AUD Net Variant - Net Return, FactSet Research Systems (Index Code - MSCSTM5_HP:MS706891) Dow Jones Brookfield Global Infrastructure (Local), FactSet Research Systems (Index Code - CLIENT:DJBLOCAL_GROSS) MSCI AC World Index (Local) - Net, FactSet Research Systems (Index Code - MSCI_N:892400) MSCI Emerging Markets Index - Net, AUD, FactSet Research Systems (Index Code - MSCI_EM_N:891800) Past performance is not indicative of future performance. 3

4 Contents 1 RARE business overview 2 Value strategy 3 Income Strategy 4 EM Strategy 5 Economic outlook and portfolio positioning Appendix

5 01 RARE business overview

6 Business update FUM FUM AUD USD Research travel Analyst / PM Location Key themes Global Value Strategy 4.5bn 3.5bn Emerging Markets Strategy 0.3bn 0.3bn Shane Hurst US UK & Europe US utilities and portfolio stock review European infrastructure and portfolio stocks Income Strategy 0.6bn 0.5bn Smart Beta 7.5mn 5.8mn Simon Ong US & Canada North American and Canadian utilities and pipelines Key personnel changes Investment / Distribution / Support - Dan Simmonds (Senior Investment Analyst and Portfolio Manager -EM and Tailored Portfolio Strategies) Note As at 30 June

7 02 Value Strategy 12 months to 30 June 2017

8 Portfolio contribution by sector & region Absolute contribution, basis points, local currency Electric Gas Water Toll Roads Airports Rail Ports Comms Cash USA & Canada Western Europe Latin America Middle East Asia Pacific Developed Cash ,402 RARE Calculations from 30 June 2016 to 30 June 2017 FactSet Research Systems, holdings based returns, (Portfolio Code - CLIENT:/PUBLISHER/RIVAF.ACCT) The above information is included for illustrative purposes only and does not constitute specific investment advice or recommendations on any particular securities. 8

9 Stock, sector & regional contribution Absolute contribution, basis points, local currency Top / Bottom Regions Contribution (bps) USA & Canada 630 Western Europe 371 Asia Pacific Developed 243 Latin America 117 Middle East 33 Top Six Stocks Contribution (bps) CSX 223 Norfolk Southern 166 Fraport 136 ADP 112 Spark Infrastructure Group 66 American Tower 61 Top Three / Bottom Three Sectors Contribution (bps) Rail 544 Electric 295 Airports 248 Gas 78 Ports 33 Water -44 Bottom Six Stocks Contribution (bps) Ameren -2 United Utilities -14 Red Eléctrica -18 National Grid -20 Enbridge Inc -31 Pennon -32 RARE Calculations from 30 June 2016 to 30 June 2017 FactSet Research Systems (Portfolio Code - CLIENT:/PUBLISHER/RIVAF.ACCT) The above information is included for illustrative purposes only and does not constitute specific investment advice or recommendations on any particular securities. 9

10 OHL Mexico Tender offer from IFM OHL Concessiones & IFM Global Infrastructure Fund (IFM), through Magenta Infraestructura (Magenta), launched an all cash tender offer to acquire up to 100% of the publicly traded shares of OHL Mexico (OHLM) at a price of Ps27 per share OHL Mexico share price, tender price and book value Book value The Board of Directors of OHLM, by resolution of its independent members, determined the offer price to be fair. RARE actively engaged all key stake holders including OHLM management (5 calls), the independent members of the OHLM board (3 calls), key members of the IFM deal team (3 calls) and their advisors (5 calls) Tender price RARE tendered only 25% of our holding to ensure the deal proceeded. RARE believe the offer was opportunistic and fundamentally undervalues OHL Mexico s assets, given it is at a significant discount to our fair value and relative to the price IFM paid for its recent acquisition of minority stakes in Conmex (OHLM s best asset) Tender announced The deal was completed after Magenta reached the minimum acceptance level of 85%. RARE welcomes IFM as a shareholder and looks forward to a constructive partnership. Bloomberg, Company Disclosure.

11 Portfolio weightings by sector & region Opening & closing positions & changes (%) Electric Gas Water Toll Roads Airports Rail Ports Comms Cash Opening USA & Canada Western Europe Latin America Middle East Asia Pacific Developed Cash Closing RARE Calculations from 30 June 2016 to 30 June 2017 FactSet Research Systems (Portfolio Code - CLIENT:/PUBLISHER/RIVAF.ACCT) Sector/Region movements greater than +/-1% highlighted. The above information is included for illustrative purposes only and does not constitute specific investment advice or recommendations on any particular securities. 11

12 Security weight changes Trading & market value movements (%) Major Weight Changes Beginning Weight (%) Ending Weight (%) 1 Weight Change (%) Top Five Atlantia ADP East Japan Railway Groupe Eurotunnel Crown Castle Bottom Five Edison International American Tower AusNet Services APA Group Sempra RARE Calculations from 30 June 2016 to 30 June 2017 FactSet Research Systems (Portfolio Code - CLIENT:/PUBLISHER/RIVAF.ACCT) 1. Weight changes are due to purchases / sales and or market movement. The above information is included for illustrative purposes only and does not constitute specific investment advice or recommendations on any particular securities. 12

13 Security weight changes Trading & market value movements (%) Additions - New names to portfolio (%) Enbridge Inc +4.7 Eutelsat Communications +3.7 United Utilities +3.4 AEP +3.0 PG&E Corp +3.0 Ienova +2.2 Williams +1.1 TAESA +1.0 CTEEP +0.9 Genesee & Wyoming INC-CL A +0.3 Deletions - Sold out of portfolio (%) Norfolk Southern -4.2 SBA Communications -2.7 Ameren -2.3 CPFL Energia -2.2 Vinci -1.9 Canadian Pacific -1.8 Aguas Andinas -1.0 Gas Natural Fenosa -1.0 Severn Trent -0.6 Turnover was 33.7% RARE Calculations from 30 June 2016 to 30 June 2017 FactSet Research Systems (Portfolio Code - CLIENT:/PUBLISHER/RIVAF.ACCT) The above information is included for illustrative purposes only and does not constitute specific investment advice or recommendations on any particular securities. 13

14 Value Portfolio positioning At 30 June 2017 Top Stocks Country Sector Weight (%) Groupe Eurotunnel France Rail 5.5 Atlantia Italy Toll Roads 5.3 Spark Infrastructure Group Australia Electric 5.1 Enbridge Inc Canada Gas 4.7 Crown Castle USA Comms 4.5 East Japan Railway Japan Rail 4.1 American Tower USA Comms 4.0 Eutelsat Communications France Comms 3.7 Kinder Morgan USA Gas 3.7 Nextera USA Electric 3.5 Key Portfolio Statistics ¹ Avg Market Capitalisation 33.8bn RARE Div Yield (Forward) ² 3.7% DPS Growth (Est. 5 Year) ² 9.9% Gearing (Current) 35.1% Interest Cover (Historic) 4.1x EV/EBITDA (Forward) ³ 11.7x Regional exposure Sector exposure RARE Calculations at 30 June FactSet Research Systems (Portfolio Code - CLIENT:/PUBLISHER/RIVAF.ACCT) 1. Based on weighted averages. 2. RARE Div Yield and DPS Growth forward estimates are based on RARE research and forecasts. 3. EV means Enterprise Value (market capitalisation + preferred equity, if any + net debt) and EBITDA means earnings before interest, tax, depreciation & amortisation. The above information is included for illustrative purposes only and does not constitute specific investment 14

15 Value Portfolio performance To 30 June month (%) 1 year (%) 3 year (%) 5 year (%) Inception (%)² RARE Infrastructure Value Fund - Hedged¹ BENCHMARK: OECD G7 Inflation Index + 5.5% MSCI AC World Index (local) RARE Infrastructure Value Fund - Unhedged¹ BENCHMARK: OECD G7 Inflation Index +5.5% MSCI AC World Index RARE Calculations to 30 June FactSet Research Systems, AUD, Net (Portfolio Code - CLIENT:/PUBLISHER/RIVAF.ACCT and CLIENT:/PUBLISHER/RIVAFU.ACCT ) 2. Inception date for RARE Infrastructure Value Fund Hedged is 13/11/2006. Inception date for RARE Infrastructure Value Fund Unhedged is 31/05/2011 BENCHMARK: OECD G7 Inflation Index + 5.5%, Factset Research Systems (Index Code - CLIENT:BENCHMARK) MSCI AC World Index (local) - Net, LOCAL, Factset Research Systems (Index Code - MSCI_N:892400) MSCI AC World Index - Net, AUD, Factset Research Systems (Index Code - MSCI_N:892400) Past performance is not indicative of future performance. 15

16 03 Income Strategy 12 months to 30 June 2017

17 Portfolio contribution by sector & region Absolute contribution, basis points, local currency Electric Gas Water Toll Roads Airports Rail Ports Comms Cash USA & Canada Western Europe Asia Pacific Developing Latin America Eastern Europe -2-2 Asia Pacific Developed Cash ,718 RARE Calculations from 30 June 2016 to 30 June 2017 FactSet Research Systems, holdings based returns, (Portfolio Code - CLIENT:/PUBLISHER/RIRSVL.ACCT) The above information is included for illustrative purposes only and does not constitute specific investment advice or recommendations on any particular securities. 17

18 Stock, sector & regional contribution Absolute contribution, basis points, local currency Top Three / Bottom Three Regions Contribution (bps) Latin America 542 USA & Canada 501 Western Europe 336 Asia Pacific Developed 311 Asia Pacific Developing 20 Eastern Europe -2 Top Six Stocks Contribution (bps) Veresen Inc 237 Light 194 TAESA 114 Nextera Energy Partners 113 DUET Group 111 Ienova 100 Top Three / Bottom Three Sectors Contribution (bps) Electric 885 Gas 576 Toll Roads 174 Airports 10 Ports -2 Water -63 Bottom Six Stocks Contribution (bps) Aguas Andinas -14 Crown Castle -15 Glow Energy -15 Enbridge Inc -23 Red Eléctrica -25 Pennon -34 RARE Calculations from 30 June 2016 to 30 June 2017 FactSet Research Systems (Portfolio Code - CLIENT:/PUBLISHER/RIRSVL.ACCT) The above information is included for illustrative purposes only and does not constitute specific investment advice or recommendations on any particular securities. 18

19 Portfolio weightings by sector & region Opening & closing positions & changes (%) Electric Gas Water Toll Roads Airports Rail Ports Comms Cash Opening USA & Canada Western Europe Asia Pacific Developing Latin America Eastern Europe Asia Pacific Developed Cash Closing RARE Calculations from 30 June 2016 to 30 June 2017 FactSet Research Systems (Portfolio Code - CLIENT:/PUBLISHER/RIRSVL.ACCT) Sector/Region movements greater than +/-1% highlighted The above information is included for illustrative purposes only and does not constitute specific investment advice or recommendations on any particular securities. 19

20 Security weight changes Trading & market value movements (%) Major Weight Changes Beginning Weight (%) Ending Weight (%) 1 Weight Change (%) Top Five SES Atlantia Ienova EDP Iberdrola Bottom Five Spark Infrastructure Group APA Group Light TAESA Crown Castle RARE Calculations from 30 June 2016 to 30 June 2017 FactSet Research Systems (Portfolio Code - CLIENT:/PUBLISHER/RIRSVL.ACCT) 1. Weight changes are due to purchases / sales and or market movement. The above information is included for illustrative purposes only and does not constitute specific investment advice or recommendations on any particular securities. 20

21 Security weight changes Trading & market value movements (%) Additions - New names to portfolio (%) Enbridge Inc +4.7 Eutelsat Communications +4.0 United Utilities +3.4 Groupe Eurotunnel +3.1 AEP +2.5 Veresen Inc +2.5 CTEEP +2.2 Enagas +2.0 CESP +1.9 PPL CORP +1.9 COPASA +1.5 National Grid +1.5 Italgas SpA +1.1 Williams +1.1 TransCanada Corp +1.0 Jiangsu Expressway +0.9 ENAV S.p.A Deletions - Sold out of portfolio (%) CPFL Energia -3.9 Spectra Energy -3.9 DUET Group -3.7 Yuexiu Transport Infrastructure -3.5 Glow Energy -3.2 Abertis -2.8 Energa -2.0 Severn Trent -1.9 American Tower -1.5 Hutchison Port Holdings -1.4 Redes Energeticas Nacionais -1.2 Aguas Andinas -1.0 SABESP -1.0 RARE Calculations from 30 June 2016 to 30 June 2017 FactSet Research Systems (Portfolio Code - CLIENT:/PUBLISHER/RIRSVL.ACCT) The above information is included for illustrative purposes only and does not constitute specific investment advice or recommendations on any particular securities. 21

22 Income Portfolio positioning At 30 June 2017 Top Stocks Country Sector Weight (%) Iberdrola Spain Electric 5.4 Atlantia Italy Toll Roads 5.0 Enbridge Inc Canada Gas 4.7 Spark Infrastructure Group Australia Electric 4.3 Eutelsat Communications France Comms 4.0 SES Luxembourg Comms 3.9 Nextera Energy Partners USA Electric 3.6 Ienova Mexico Gas 3.5 United Utilities UK Water 3.4 NRG Yield USA Electric 3.2 Key Portfolio Statistics ¹ Avg Market Capitalisation 22.3bn RARE Div Yield (Forward) ² 5.3% DPS Growth (Est. 5 Year) ² 8.3% Gearing (Current) 38.2% Interest Cover (Historic) 4.6x EV/EBITDA (Forward) ³ 10.1x Regional exposure Sector exposure RARE Calculations at 30 June FactSet Research Systems (Portfolio Code - CLIENT:/PUBLISHER/RIRSVL.ACCT) 1. Based on weighted averages. 2. RARE Div Yield and DPS Growth forward estimates are based on RARE research and forecasts. 3. EV means Enterprise Value (market capitalisation + preferred equity, if any + net debt) and EBITDA means earnings before interest, tax, depreciation & amortisation. The above information is included for illustrative purposes only and does not constitute specific investment 22

23 Income Portfolio performance To 30 June month (%) 1 year (%) 3 year (%) 5 year (%) Inception (%)² RARE Infrastructure Income Fund¹ BENCHMARK: OECD G7 Inflation Index +5.5% RARE Calculations to 30 June FactSet Research Systems, AUD, Net (Portfolio Code - CLIENT:/PUBLISHER/RIRSVL.ACCT) 2. Inception date is 01/10/2008 BENCHMARK: OECD G7 Inflation Index +5.5%, Factset Research Systems (Index Code - CLIENT:BENCHMARK) Past performance is not indicative of future performance. 23

24 04 EM Strategy 12 months to 30 June 2017

25 Portfolio contribution by sector & region Absolute contribution, basis points, local currency Electric Gas Water Toll Roads Airports Rail Ports Comms Cash Asia Pacific Developing Latin America ,052 Eastern Europe 0 0 Cash ,836 RARE Calculations from 30 June 2016 to 30 June 2017 FactSet Research Systems, holdings based returns, (Portfolio Code - CLIENT:/PUBLISHER/RIRSEM.ACCT) The above information is included for illustrative purposes only and does not constitute specific investment advice or recommendations on any particular securities. 25

26 Stock, sector & regional contribution Absolute contribution, basis points, local currency Top / Bottom Regions Contribution (bps) Latin America 1052 Asia Pacific Developing 768 Eastern Europe -0 Top Six Stocks Contribution (bps) COPASA 187 Power Grid 183 CPFL Energia 157 TAESA 127 Mahanagar Gas Ltd 126 Malaysia Airports 124 Top Three / Bottom Three Sectors Contribution (bps) Electric 742 Gas 333 Airports 231 Comms 100 Ports 86 Rail -18 Bottom Six Stocks Contribution (bps) Aguas Andinas -10 Enel Chile SA -17 Gateway Distriparks Ltd. -18 Glow Energy -25 Guangdong Investment -36 Korea Electric Power -72 RARE Calculations from 30 June 2016 to 30 June 2017 FactSet Research Systems (Portfolio Code - CLIENT:/PUBLISHER/RIRSEM.ACCT) The above information is included for illustrative purposes only and does not constitute specific investment advice or recommendations on any particular securities. 26

27 Portfolio weightings by sector & region Opening & closing positions & changes (%) Electric Gas Water Toll Roads Airports Rail Ports Comms Cash Opening Asia Pacific Developing Latin America Eastern Europe Cash Closing RARE Calculations from 30 June 2016 to 30 June 2017 FactSet Research Systems (Portfolio Code - CLIENT:/PUBLISHER/RIRSEM.ACCT) Sector/Region movements greater than +/-1% highlighted. The above information is included for illustrative purposes only and does not constitute specific investment advice or recommendations on any particular securities. 27

28 Security weight changes Trading & market value movements (%) Major Weight Changes Beginning Weight (%) Ending Weight (%) Weight Change (%) Top Five Beijing Capital International Airport Malaysia Airports China Everbright international Ienova Jasa Marga Bottom Five Enel Chile SA Aguas Andinas Sabesp Guangdong Investment CPFL Energia RARE Calculations from 30 June 2016 to 30 June 2017 FactSet Research Systems (Portfolio Code - CLIENT:/PUBLISHER/RIRSEM.ACCT) 1. Weight changes are due to purchases / sales and or market movement. The above information is included for illustrative purposes only and does not constitute specific investment advice or recommendations on any particular securities. 28

29 Security weight changes Trading & market value movements (%) Additions - New names to portfolio (%) Gujarat State Petronet +4.7 Light +3.5 Telesites SAB de CV Class B +3.0 Mahanagar Gas Ltd +2.5 China Merchants Holdings +2.3 Energisa SA +2.3 Korea Electric Power +2.3 CTEEP +1.5 IRB Infrastructure +1.0 Deletions - Sold out of portfolio (%) Equatorial -5.7 TAESA -4.5 Glow Energy -3.6 ASUR -2.1 ICTS -1.5 Petronet Lng Limited -0.5 Energa -0.2 RARE Calculations from 30 June 2016 to 30 June 2017 FactSet Research Systems (Portfolio Code - CLIENT:/PUBLISHER/RIRSEM.ACCT) The above information is included for illustrative purposes only and does not constitute specific investment advice or recommendations on any particular securities. 29

30 EM Portfolio positioning At 30 June 2017 Top Stocks Country Sector Weight (%) Bharti Infratel India Comms 5.9 Power Grid India Electric 5.8 Malaysia Airports Malaysia Airports 5.8 Jasa Marga Indonesia Toll Roads 5.1 Gujarat State Petronet India Gas 4.7 NTPC India Electric 4.7 Ienova Mexico Gas 4.3 Sabesp Brazil Water 3.6 Light Brazil Electric 3.5 OHL Mexico Mexico Toll Roads 3.3 Key Portfolio Statistics ¹ Avg Market Capitalisation 8.7bn RARE Div Yield (Forward) ² 3.8% DPS Growth (Est. 5 Year) ² 11.5% Gearing (Current) 29.5% Interest Cover (Historic) 7.5x EV/EBITDA (Forward) ³ 8.6x Regional exposure Sector exposure RARE Calculations at 30 June FactSet Research Systems (Portfolio Code - CLIENT:/PUBLISHER/RIRSEM.ACCT) 1. Based on weighted averages. 2. RARE Div Yield and DPS Growth forward estimates are based on RARE research and forecasts. 3. EV means Enterprise Value (market capitalisation + preferred equity, if any + net debt) and EBITDA means earnings before interest, tax, depreciation & amortisation. The above information is included for illustrative purposes only and does not constitute specific investment 30

31 EM Portfolio performance To 30 June month (%) 1 year (%) 3 year (%) 5 year (%) Inception (%)² RARE Emerging Markets Fund¹ BENCHMARK: Citi EM Sov Invest Bonds USD+5% S&P EM Infrastructure Index MSCI Emerging Markets Index RARE Calculations to 30 June FactSet Research Systems, AUD, Net (Portfolio Code - CLIENT:/PUBLISHER/RIRSEM.ACCT) 2. Inception date is 01/10/2008 BENCHMARK: Citi EM Sov Invest Bonds USD+5%, Factset Research Systems (Index Code - CLIENT:EMSOVBONDSUSDPLUSPR) S&P EM Infrastructure Index - Net, AUD, Factset Research Systems (Index Code - SPTH_N:STRKEIFX) MSCI Emerging Markets Index - Net, AUD, Factset Research Systems (Index Code - MSCI_EM_N:891800) Past performance is not indicative of future performance. 31

32 07 Economic outlook and portfolio positioning

33 Economic outlook 12 to 18 month view Revised scenarios by region* US BEAR CASES Policy errors and currency stress 20% Protectionist measures from the Trump administration are the main downside risk to US and trading partner growth. High dollar for longer means weak manufacturing, corporate investment stutters in face of falling export demand. Productivity remains stagnant leading to growth well below historic trend. Risk of financial stress initiated by tightening of financial conditions, failure of EM corporates, or China. CENTRAL CASES Bond yields lower for longer 6055% Trend GDP growth in the medium-term, plus about 1% additional GDP growth a notional amount from fiscal stimulus (impact ). Gradual normalisation of monetary policy. Bond yields are lower for longer reflecting international monetary conditions. US dollar and oil prices remain range-bound. BULL CASES US consumer led upswing 2025% Strong increase in consumer spending resulting from high wage growth and lower savings rates, combined with buoyant corporate investment and US housing continues to recover sharply. Increase in participation rate. Productivity growth returns to historic averages. No negative impact from global currency stress. Fiscal policy and tax reforms result in stimulus to consumers and corporate investment, extending the business cycle. Bond yields rise to above 3%. EU Fiscal policy and reform inertia slows growth, particularly Italy and France. While financial risks appear to have eased, political risks have heightened, due to Brexit and a series of Eurozone elections. Potential for social issues including migration to challenge current political establishment, including Germany, and derail reforms required to improve productivity. Corporate and financial sector weakness caused by political uncertainty and links into EMs. ECB tapers Quantitative Easing beginning Growth across the Eurozone is temporarily above trend, but declining due to weaker sentiment, trade and business/consumer expenditure. Domestic demand strength closes the Output Gap, with higher core inflation boosting bond yields in the medium-term. Brexit has increased uncertainty, reducing economic growth in the UK, and expected to marginally hit growth in Europe. EU is a taker of global conditions. Combination of supportive ECB action and global growth led to broad expansion of credit cycle. Domestic demand strength closes the Output Gap, with higher core inflation boosting bond yields in the medium-term. Signposts likely to include relaxation of Germany s hard line on austerity sufficiently to lead to new growth agenda, common regulation and back-stop support for EZ banks (Italy & Portugal) and other related measures. Japan Headwinds from global currency stress, potential trade/currency war. BOJ engages in further unconventional monetary policy, with unintended consequences. Sustained modest Japanese growth resulting from looser monetary policy (continuing to undershoot the 2% inflation target), and fiscal stimulus. Microeconomic reforms fail to lift productivity, but corporate governance continues to improve. Lending to firms continues to improve. Japanese institutional investors progressively shift asset allocation away from bonds into equities. Progressive transformation of the Japanese economy resulting from a long-term improvement in productivity, more relaxed monetary policy, boosting corporate and consumer confidence. Microeconomic reforms slowly improve productivity and change corporate behaviour. Note As at 30 June 2017 * % represents RARE s opinion of probability of scenarios Opinions may change without notice. 33

34 Economic outlook 12 to 18 month view (cont d) Revised scenarios by region* China BEAR CASES Policy errors and currency stress 20% Mismanagement of structural transition to consumer-led economy in China, including failure of central government to support local government and the banks, leading to disorderly slowdown. Potential for significant bad debts impacting liquidity in key areas of the economy (property & financial institutions in particular). Commodity prices & currencies transmit Chinese crisis to the global economy. CENTRAL CASES Bond yields lower for longer 6055% Chinese growth continues to slow in the medium-term, with policy moving from strong stimulus to less accommodative (especially post- Plenum). Civil unrest remains contained. Active management of the capital account. Slower trade growth is a headwind for employment, investment and consumer demand. BULL CASES US consumer led upswing 2025% Policy measures in China (domestic demand growth and financial liberalization) and continued pick-up in export demand supports stable growth. Middle class consumer emerges as a demand pull for Asian (and lesser extent global) products increasing intra-asian and global trade. EMs Capital flows are volatile in response to strong US dollar and US monetary policy, resulting in tightening financial conditions in EMs in particular those with high deficits and USD denominated debt, and limited scope for effective policy response. Slower trade growth triggers protectionist responses. Asian trade rebounds, with an improvement in exports & some areas of governance/policy. Mexican growth is reduced in the mediumterm, with lower exports and investment, but no harsh outcome from NAFTA re-negotiation. Weak underlying economic and political environment in Brazil is exacerbated by corruption investigations, with the economy slow to turn. The new Indian government is successful in implementing reform agenda facilitating upswing in investment (including Foreign Direct Investment).Capital flows into EMs return, and growth in Developed Markets supports recovery. ROW Weak capex in resources is not offset by balanced growth in other sectors (potential danger of investment bubbles, such as property). Households susceptible to an increase in real interest rates. Stabilization of economic conditions, as resource investment (has troughed in Canada) is replaced by domestic growth. Borrowing costs get dragged up by movements in US interest rates (and normalization of term premia). Australian and Canadian economies rebound on the back of higher global growth, and associated inbound investment. Note As at 30 June 2017 * % represents RARE s opinion of probability of scenarios Opinions may change without notice. 34

35 Valuation pack key takeaways Portfolio level 5 year forward IRR showing an expected return of ~10% pa (nominal) for Value Strategy ~10% pa (nominal) for Income Strategy ~16% pa (nominal) for Emerging Markets Strategy Meaningful excess return expected over the market cost of equity RARE returns are calculated with an expectation of some normalising of monetary policy during assumed holding period of 5yrs (exception is EU, where normalisation expected to run to mid s) Operating performance of our portfolio companies remains in line with expectations Our expectation is that the global economy continues to grow slowly but steadily, led by developed economies and aided by improvement in developing economies Portfolio is positioned accordingly. Universe level Most sector EV / EBITDA multiples in line with 5yr averages Forward looking returns (Real IRRs) have significant range by region / sector / stock Dividend yields differ between Utility & User Pays companies More growth oriented companies are increasing payouts (reacting to market demand) Utilities generally still have a higher yield and compelling DPS growth Unlisted transactions continue to close above listed valuations. RARE Research As at 30 June Figures are RARE s expected returns based on RARE research. There is no guarantee these targets will be met. RARE s opinions may change at any time without notice. 35

36 EV / EBITDA Utility vs Infrastructure consensus EV / EBITDA EV / EBITDA - Historical trend using FY1 EBITDA 16x 14x 12x 10x 8x 6x 4x MSCI World Utilities Infrastructure As at 30 June FactSet Research Systems and RARE calculations. Arithmetic average, current EV divided forward consensus EBITDA, EV = Market Cap + Net Debt + Minority Interest and Preferred Stock. 36

37 Regional / sectoral attractiveness Asia Pacific Developed Asia Pacific Developing Eastern Europe Latin America Middle East USA & Canada Western Europe Electricity Spark AusNet Services Power Grid NTPC Energia TAESA CESP Light PG&E AEP EIX Red Electrica Iberdrola Gas APA Group Tokyo Gas Gujarat State Petronet Mahanagar Gas IEnova Enbridge Kinder Morgan TransCanada Italgas Enagas Water Guangdong Manila Water Sabesp Copasa American Water Aqua America Pennon United Utilities Airports Sydney Airport Auckland Int l Airport Beijing Capital Malaysian Airports TAV ASUR GAP OMA ADP AENA Fraport Rail JR East JR Central Rumo Logistica Genesee & Wyoming CSX Eurotunnel Toll Roads Transurban Jasa Marga IRB CCR Atlantia Ports China Merchants DPW Comms Bharti Infratel American Tower Crown Castle SES Eutelsat Note As at 30 June 2017 Opinions may change without notice. 37

38 IRR Expected returns from the Value Strategy Equity IRR has been reasonable predictor (see portfolio performance) Portfolio companies currently offering a 5yr equity IRR of circa 9.6% on average well above cost of equity Portfolio stocks (expected 5 year returns annualised from RARE financial models) 18% Value Portfolio IRR 16% Value Portfolio Average IRR 14% 12% 10% 8% Target return 6% Jun 11 Dec 11 Jun 12 Dec 12 Jun 13 Dec 13 Jun 14 Dec 14 Jun 15 Dec 15 Jun 16 Dec 16 Jun 17 RARE calculations as at 30 June 2017 Portfolio Weighted average of RARE calculated 5 year IRR for Value Strategy portfolio stocks, monthly. Average represents average of observations over graph period. Figures are RARE s expected returns based on RARE research. There is no guarantee these targets will be met. RARE s opinions may change at any time without notice. 38

39 IRR Expected returns from the Income Strategy Equity IRR has been reasonable predictor (see portfolio performance) Portfolio companies currently offering a 5yr equity IRR of circa 10.2% on average well above cost of equity Portfolio stocks (expected 5 year returns annualised from RARE financial models) 18% 16% 14% 12% Income Portfolio IRR Income Portfolio Average IRR 10% 8% Target return 6% Jun 11 Dec 11 Jun 12 Dec 12 Jun 13 Dec 13 Jun 14 Dec 14 Jun 15 Dec 15 Jun 16 Dec 16 Jun 17 RARE calculations as at 30 June 2017 Portfolio Weighted average of RARE calculated 5 year IRR for Income Strategy portfolio stocks, monthly. Average represents average of observations over graph period. Figures are RARE s expected returns based on RARE research. There is no guarantee these targets will be met. RARE s opinions may change at any time without notice. 39

40 RARE communications Thought leadership papers Quarterly papers focused on infrastructure investment Thematic pieces Thematic ad-hoc pieces based on relevant global events On the ground Members of our Investment Team share specialist insights from their research trips Top 10 A high-level overview of the top 10 holdings in our Value and Income Strategies RARE Insights Q&A style, this investor communication resource addresses timely investor questions on infrastructure investment and captures our essential insights on global listed infrastructure Quarterly strategy review A comprehensive Strategy review, providing specific details on quarterly performance contribution and movements in the portfolio Portfolio Insights Presented in a Q&A style, a Portfolio Manager discusses the quarterly performance contribution of our Strategies, and key movements over the period Video library Our website video library contains topical presentations on current issues and foundational topics Quarterly webinars Held quarterly these are a live webinar to review the previous quarter Valuation Pack Quarterly summary of RARE s valuation of infrastructure assets. Available as a slide deck and video presentation

41 Questions

42 Contact details Nick Langley Co-Chief Executive Officer Co-Chief Investment Officer Phone Nick@RAREinfrastructure.com Matt Bushby Global Head of Distribution Phone Matt.Bushby@RAREinfrastructure.com

43 Important information While the information contained in this document has been prepared with all reasonable care, RARE Infrastructure Limited ( RARE ) and its related companies accept no responsibility or liability for any errors, omissions or misstatements however caused. This information is not personal advice. This information has been prepared without taking account of your objectives, financial situation or needs. Potential investors should seek independent advice as to the suitability of any products to their investment needs. The fact that shares in a particular company may have been mentioned should not be interpreted as a recommendation to buy, sell or hold that stock. Legg Mason Asset Management Australia Limited (AFSL No ; ABN ) ( Legg Mason Australia ) is the responsible entity for the RARE Infrastructure Value Fund Hedged (ARSN ), RARE Infrastructure Value Fund Unhedged (ARSN ), RARE Infrastructure Income Fund (ARSN ) and RARE Emerging Markets Fund (ARSN ). Applications to invest can only be made on the application form accompanying the Fund Product Disclosure Statement (PDS) dated 30 November, Potential investors should consider the PDS and the Additional Information Booklet (AIB) before deciding whether to invest, or continue to invest in the Fund(s). The PDS and AIB can be obtained on or by contacting RARE. Contact RARE on (02) , or by writing to Level 13, 35 Clarence Street, Sydney, NSW 2000, by fax on (02) or at operations@rareinfrastructure.com. Legg Mason Australia can be contacted by writing to Legg Mason Australia, Level 47, 120 Collins Street, Melbourne, VIC 3000, by telephone on or by fax on (03) Past performance is not indicative of future performance. Any opinions or outlook contained in this document is subject to change without notice and do not constitute investment advice or recommendations. Legg Mason Australia does not guarantee any rate of return or the return of capital invested. Investments are subject to risks, including, but not limited to, possible delays in payments and loss of income or capital invested. Investment Advisers This presentation has been prepared for investment advisers only. This presentation presents information in a manner which is not suitable for retail investor and RARE does not authorise the provision of this presentation to retail investors.