Infrastructure, real estate and alternative strategies: Diversification choices that may promote stability

 

Diversification is often considered essential to investing because you don’t want every part of your portfolio reacting the same way to the same event. While diversification does not ensure a profit or protect against market loss, it can help manage risk. Lower historical correlation to traditional assets and/or to each other is an important reason to consider making infrastructure, real estate and alternative strategies part of your diversified investment approach.



IMPORTANT INFORMATION: Past performance is no guarantee of future results.  Performance shown excludes sales charges, if any. Had sale charges been included, performance would be lower. The "% Change" column(s), indicate a change in the Net Asset Value (NAV) or Market Price from the previous business day. All investments involve risk, including loss of principal. Please see each product’s web page for specific details regarding investment objective, risks, performance and other important information. Review this information carefully before you make any investment decision. Additional share classes and products may be available.

 

Listed infrastructure assets
Infrastructure assets may be effective portfolio diversifiers because they can offer the potential for predictability and stability of cash flows to support dividend payouts, which in turn may help lower correlation to traditional asset classes. Global listed infrastructure assets trade in the securities markets and may offer a higher level of liquidity than non-listed assets.
 

Real estate
Commercial real estate generally has a history of very low or even negative correlation with stocks, bonds, infrastructure and alternative strategies. Real estate opportunities are becoming more broadly available to investors through products that offer lower minimum investments and more suitable levels of liquidity than those available with traditional direct investment in the sector.
 

Alternative strategies
Alternative strategies tend to behave differently than traditional strategies because they apply specialized tactics to conventional investments, resulting in low correlation to traditional investments and to each other. A variety of alternative strategies are available that combine various strategies into effectively diversified allocations designed to meet specific goals and objectives.


Investments that behave differently may play well together in a diversified portfolio

5-Year Correlation and Beta Relative to the S&P 500

 

Source: Bloomberg, as of 04/30/2018. Past performance is no guarantee of future results. This chart is for illustrative purposes only and does not represent an actual investment. Unmanaged index returns do not reflect any fees, expenses or sales charges. Indexes are unmanaged and investors cannot invest directly in an index. Correlation refers to a relationship existing between mathematical or statistical variables which tend to vary, be associated, or occur together in a way not expected on the basis of chance alone. Beta measures the sensitivity of an investment to the movement of its benchmark.  A beta higher than 1.0 indicates the investment has been more volatile than the benchmark and a beta of less than 1.0 indicates that the investment has been less volatile than the benchmark.

 

In This Series

Infrastructure: Price vs. Valuation

An in-depth understanding of these impacts enables an active, benchmark-unaware manager to better navigate through the economic cycles.


Real Estate: 2018 Investment Outlook

Three key themes for the coming year: increased demand for warehouse space driven by e-commerce expansion; massive pent-up housing demand among young adults; and a challenging global interest rate environment.


Key Themes for Infrastructure in 2018

Nick Langley and Richard Elmslie, Co-CEOs and Co-CIOs of RARE Infrastructure, explain the risk and opportunities to companies for each of these themes and give their general outlook for 2018.



Important risk information: Dividends and yields can fluctuate and are not guaranteed. Alternative investments such as derivatives and hedge funds are subject to risk. Unregistered hedge funds are highly speculative investments that employ aggressive investment strategies and carry substantial risk. Derivatives, such as options and futures, can be illiquid, may disproportionately increase losses, and have a potentially large impact on portfolio performance. Companies in the infrastructure industry may be subject to a variety of factors that could adversely affect their business or operations, including high interest costs in connection with capital construction programs, high degrees of leverage, costs associated with governmental, environmental and other regulations, the effects of economic slowdowns, increased competition from other providers of services, uncertainties concerning costs, the level of government spending on infrastructure projects, and other factors. Real estate investment trusts (REITs) are closely linked to the performance of the real estate markets. REITs are subject to illiquidity, credit and interest rate risks, and risks associated with small and mid-cap investments. Asset-backed, mortgage-backed or mortgage-related securities are subject to prepayment and extension risks.

The S&P 500 Index is an unmanaged index of 500 stocks that is generally representative of the performance of larger companies in the U.S.

The HFRI Fund Weighted Composite Index is a global, equal-weighted index of over 1,500 single-manager funds that report to HFR Database. Constituent funds report monthly net of all fees performance in U.S. dollars and have a minimum of $50 million under management or a 12-month track record of active performance. The HFRI Fund Weighted Composite Index does not include funds of hedge funds.

The S&P Global Infrastructure Index is designed to track 75 companies from around the world chosen to represent the listed infrastructure industry while maintaining liquidity and tradability. To create diversified exposure, the index includes three distinct infrastructure clusters: energy, transportation, and utilities.

The NCREIF Property Index (NPI) provides returns for institutional-grade real estate held in a fiduciary environment in the United States. Properties are managed by investment fiduciaries on behalf of tax-exempt pension funds.