Magellan Select Infrastructure Strategy

Portfolio of 20 to 40 infrastructure companies selected on a valuation-driven basis from a strictly defined universe

Reports

Investment objectives

Provide superior risk-adjusted returns to available infrastructure indices.

Generate a minimum gross return of CPI + 5% per annum over a business cycle (approximately five years)

Investment philosophy

The Select Strategy, launched in July 2007, has been designed to provide investors with efficient access to the infrastructure asset class, while protecting capital in adverse markets.

Magellan believes that the infrastructure asset class, when appropriately defined, is characterised by monopoly-like assets that face reliable demand and enjoy predictable cashflows. As a result, Magellan has established proprietary classification criteria to appropriately categorise securities as investment grade infrastructure and thus potentially eligible for inclusion in its portfolios, or otherwise. Potential investments that meet these criteria are expected to achieve strong underlying financial performance over medium-to long-term timeframes, which should translate into reliable, inflation-linked investment returns.

Magellan believes that an appropriately structured portfolio of 20 to 40 investments can provide sufficient diversification to ensure that investors are not overly correlated to any single company, industry-specific or macroeconomic risk.

Portfolio construction

The Select Strategy’s investment process involves three key stages:

Only securities that meet Magellan’s proprietary infrastructure classification criteria are included in the Select Strategy’s investable universe. In order for a security to meet this definition, its underlying business must provide a service that is essential to the efficient functioning of a community, while generating cash flows that are not subject to material external risks (such as commodity prices). Furthermore, Magellan evaluates other criteria, such as gearing levels, sovereign risk, regulatory risk and reporting transparency, which, if failed, will result in exclusion from the investment universe.

Magellan believes that by excluding businesses that fail to meet these criteria, the universe consists purely of companies that enjoy reliable demand and generate predictable cash flows.

Each security in the investment universe is analysed in detail. This analysis includes evaluations of a company’s external environment, business’s specific issues, historical and forecast financial performance and its assessed valuation.

Portfolio construction is driven by the results of qualitative stock analysis, valuation, formal risk controls and factor risk management. The portfolio construction process focuses on long-term value, rather than index-relative positioning.

The resulting portfolio provides investors with an appropriately diversified exposure to securities that meet Magellan’s infrastructure classification criteria, while giving consideration to each security’s quality and its price relative to its assessed intrinsic value.

Available Vehicles

Separately Managed Account

Investors can access the Select Infrastructure Strategy via a separately managed account (subject to conditions being met) or via the following investment vehicle.