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IN THIS PAPER
Asset allocation arguments, revisited. Listed infrastructure and REITs possess characteristics that set them apart from mainstream public equities, especially over a long-term horizon. Investors should beware of the benchmarks used to construct arguments supporting or opposing exposure.
Listed infrastructure and REITs: better together?These two sectors offer interesting complementarity, with Listed Infrastructure outperforming in bear markets and REITs tending to do better in bull markets although the latter have become more resilient since the GFC. This has helped to spur the development of hybrid offerings.
Industry evolution.Managers are building, buying in and bolting together new teams in order to develop new offerings in this space. The strongest trend: managers with a background in REITs expanding to cover listed infrastructure. New teams and altered team dynamics contribute to the manager selection challenge.
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The rising popularity of listed infrastructure and listed real asset strategies is propelled by “push” as well as “pull” factors. Driving forces include: slow or problematic deployment in private infrastructure or real estate; lack of diversification; a desire for flexibility late in the cycle, occasionally with an explicit intent to redeploy when private market opportunities become more compelling; greater breadth and depth of the product universe, as well as longer live track records to analyse and more customisation potential; and, lastly, an improved understanding of the fundamental characteristics of REITs and listed infrastructure.
At bfinance, these drivers are reflected in increased manager search activity by global pension funds and other institutional investors. This activity has also changed in nature: 40% of the firm’s listed real asset searches in the last two years have been for hybrid strategies combining both listed infrastructure and REITs rather than separate offerings.
This paper provides a review of key issues around asset allocation, strategy selection, implementation and benchmarking. It also takes a closer look at the aforementioned hybrid strategies, exploring the different structures and the range of approaches that managers take to subjects such as relative value analysis.
Important Notices
This commentary is for institutional investors classified as Professional Clients as per FCA handbook rules COBS 3.5R. It does not constitute investment research, a financial promotion or a recommendation of any instrument, strategy or provider. The accuracy of information obtained from third parties has not been independently verified. Opinions not guarantees: the findings and opinions expressed herein are the intellectual property of bfinance and are subject to change; they are not intended to convey any guarantees as to the future performance of the investment products, asset classes, or capital markets discussed. The value of investments can go down as well as up.
