Real Estate & Infrastructure:
Compelling Alternatives
for Superior Diversification
By Tom Dicker,
Vice President & Portfolio Manager,
1832 Asset Management L.P.
and
Frank Latshaw,
Portfolio Manager,
1832 Asset Management L.P.
May 14, 2019
When it comes to alternative assets, real estate and infrastructure have long been a staple for pension plans and foundations, which understand the compelling diversification benefits provided by the two asset classes. Viewed separately, each asset class delivers multiple levels of diversification: by geography, property type, industry and even by market-capitalization.
By putting the two asset classes together under one roof, you have a fund that is not just less correlated to equity and bond markets – it’s also less correlated with either the infrastructure or real estate sectors individually.
Many investors often think of the two asset classes separately and might purchase both an infrastructure fund and a real estate investment trust (REIT) fund to increase a portfolio’s diversification. However, combining both asset classes into a single fund essentially provides double diversification. By putting the two asset classes together under one roof, you have a fund that is not just less correlated to equity and bond markets – it’s also less correlated with either the infrastructure or real estate sectors individually.
Infrastructure’s Long-Term Appeal
Infrastructure as an asset class has gotten quite a bit of attention recently as investors look to alternative investments that are less correlated to equities and bonds. The key investment attributes of infrastructure assets – healthy sustainable returns and growth, predictable cash flow and stability – look especially appealing today.Aging infrastructure, population growth, urbanization and the demand for renewable power – just to name a few – have created a tremendous need for infrastructure investment. The gap between required spending to meet basic societal needs versus what’s actually being spent is estimated to be close to US$60 trillion on a multi-decade basis. This represents a compelling long-term opportunity for investors in the asset class.
Real Estate: A Position of Strength
Although there was an uptick in volatility in late 2018, it’s worth noting that real estate companies are now in a much better position, versus the last business cycle, in terms of both balance-sheet strength and the supply-demand dynamic. In fact, we believe the entire capital structure is much better. Many real estate companies are doing much less development, versus the previous cycle, and many have disposed of their lower-quality assets, which makes them more recession resistant.
When it comes to long-term positioning in the real estate sector, we believe investment flexibility remains a key to managing risk. For example, early in the business cycle, we might gravitate toward office REITs, while later in the cycle we would pivot more toward defensive property types, such as apartments and healthcare.
The Best of Both Worlds
Infrastructure companies generate stable revenues from long-life assets that charge tolls for essential services, while commercial real estate companies generate rental income from leasing properties to businesses on long term leases. Combining the earnings power of global commercial real estate and infrastructure assets in a single fund offers individual investors access to a sustainable, reliable income stream along with the potential for long-term growth.
The Liquid Alternative Advantage
Providing the liquidity and transparency of a mutual fund with the investment flexibility of a hedge fund, liquid alternatives deliver the potential for enhanced diversification, decreased volatility and better risk-adjusted returns. A key appeal of Dynamic Real Estate & Infrastructure Income II Fund is its straightforward focus on real assets and real income–something that all investors can appreciate.
Learn more about Tom and Frank and Dynamic’s latest liquid alternative offering, Dynamic Real Estate & Infrastructure Income II Fund.
Footnotes:
1“Infrastructure productivity: How to save $1 trillion a year,” McKinsey Global Institute, January 2013.
2 This strategy is used in the management of Dynamic Real Estate & Infrastructure Income Fund, which was launched in November 2009, and is sold by Offering Memorandum.
About Tom Dicker and Frank Latshaw
Tom Dicker, Hons. B. Comm., CFA
Vice President & Portfolio Manager
Tom Dicker has over 15 years of investment industry experience and is lead portfolio manager of Dynamic Global Real Estate Fund, as well as co-manager of Dynamic Real Estate & Infrastructure Income Fund and Dynamic Real Estate & Infrastructure Income II Fund. He also co-manages several funds and covers a number of areas, including U.S. equities, small cap equities, and real-estate securities.
Frank Latshaw, CPA, CA, CBV, CFA
Portfolio Manager
Frank Latshaw has over 26 years of investment industry experience. Frank has in-depth knowledge of the global infrastructure space and is lead portfolio manager of Dynamic Global Infrastructure Fund and co-manager of Dynamic Real Estate & Infrastructure Income Fund and Dynamic Real Estate & Infrastructure Income II Fund.
Disclaimer:
Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. The indicated rates of return are the historical annual compound total returns including changes in unit values and reinvestment of all distributions does not take into account sales, redemption or option changes or income taxes payable by any security holder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.
© Copyright 2019 1832 Asset Management L.P. All rights reserved.
Dynamic Funds® is a registered trademark of its owner, used under license, and a division of 1832 Asset Management L.P.