3 ways to tap into real assets

When it comes to investing in real assets, there are three main areas of focus: infrastructure equities, real estate equities and fixed income.

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So says Craig Noble, CEO of Brookfield Investment Management and portfolio manager for the firm’s global infrastructure securities strategies. His firm manages the Renaissance Real Assets Private Pool.

In these three main buckets, he invests in liquid securities and, typically, he chooses stocks and bonds tied to developed markets. “We’re investing in companies that own and operate infrastructure assets, or [that own] office buildings or communication towers,” for example.

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“Real asset investments offer an interesting combination of stable cash flows over the long term [that] also grow in line with GDP and inflation,” he explains. “In addition, we can tactically allocate to natural resources equities when we feel opportunities are compelling.”

Noble says his real asset strategy “generates a good level of current income—roughly 4% or 5% of current yield—and cash flows are growing 4% or 5% [per] year over the long term.”

One company he’s invested in is Groupe Eurotunnel SE, which trades on France’s Euronext Paris exchange and operates the Channel Tunnel that runs between the U.K. and France. He also looks at electricity grid operators in the U.S. and companies like American Tower, which is a communication tower company in North America.

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In the fixed income section of his portfolio, Noble holds real asset bonds. “[These] offer a similar level of current income compared with the broader market, but [they have] better downside protection. They also have a lower frequency of default and a higher recovery rate when there are company-specific issues.”

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What about emerging markets?

Developed markets are less risky, says Noble. But “there are some very compelling investment opportunities in emerging markets from time to time. We focus on assets with good management teams where valuations are simply too cheap.” In the past, he’s invested in companies that operate in Latin America and the Asia-Pacific region.

When exposed to emerging markets, Noble ensures he has a valuation cushion. “Emerging markets do offer a unique set of risks compared to developed markets,” due to differences in real asset industry standards and regulations.

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Macro trends can also pose risks, but such trends are an issue in developed markets as well, says Noble. “Whether we’re thinking about the interest rate [environment] in Europe and Japan going negative, or about the possible geopolitical risks of Brexit, [macro trends] absolutely influence our overall portfolio construction.”

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