Portfolio of typically 80 to 100 infrastructure companies that provides investors with a diversified exposure to a strictly defined universe
The Core Strategy (“Core Strategy”) is designed to provide investors with investment returns consistent with Magellan’s defined universe of infrastructure stocks. Magellan’s infrastructure universe is more conservatively defined than standard benchmark indices and therefore provides investors with a more defensive exposure to the infrastructure asset class.
Magellan believes that the infrastructure asset class, when appropriately defined, is characterized 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 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.
The Core Strategy invests in all of the companies within Magellan's defined investable universe of listed-infrastructure securities. The application of Magellan’s infrastructure definition serves to limit external risks and, therefore, reduce downside risk. Magellan believes that minimising downside risks within an investment portfolio is a key part of generating superior long-term investment returns.
The Core Strategy’s investment process involves two key stages:
Only securities that meet Magellan’s proprietary infrastructure classification criteria are included in the Core 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 materially subject to 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 using fundamental research to exclude businesses that fail to meet these criteria, the resulting universe should be limited to companies that enjoy reliable demand and generate predictable cash flows, a universe unattainable by purely quantitative measures (including those employed by benchmark providers).
All securities that comprise the investable universe are included in the investment portfolio. The weighting of securities in the portfolio is set by pre-determined rules to ensure that the portfolio is appropriately diversified.
Hundreds of stocks in our infrastructure universe are filtered down to between 80 – 100 that:
Our portfolio construction begins with an unconstrained weighting based on free-floating market capitalisation.
Overweight individual securities are then constrained to a maximum of 3% of total holdings.
Constraints on the aggregate weight applied to 7 geographic regions are then applied.
The US and EU are each constrained to a maximum weight of 40% of total holdings.
All other regions are constrained to a maximum weight of 15%.
Finally, constraints on the weights applied to 9 infrastructure subsectors are then applied.
All subsectors are constrained to a maximum weight of 30% of total holdings.
Ongoing dynamic analysis of business fundamentals and monthly rebalancing mitigates event risk and preserves targeted diversification settings.
Every quarter, each company within our universe is reassessed on the basis of its quality, valuation and key risks creating new active portfolio construction inputs.
Investors can access the Core Strategy via a separately managed account (subject to conditions being met).
MFG Asset Management acts as the sub-adviser to the Frontier MFG Core Infrastructure Fund.
For more information regarding this fund please contact Frontier Funds.