UK investors worried about the increasingly uncertain economic and market backdrop should consider the diversification benefits of real assets, according to JP Morgan Asset Management’s Phil Waller.
Waller – head of the asset manager’s alternative solutions group responsible for overseeing the recently launched JPMorgan Global Core Real Assets investment trust – said that as well as diversification, real assets can provide a steady income in more volatile conditions.
Phil Waller, head of the group, said real assets offer diversification from volatile equity markets and a reliable income in times of greater uncertainty.
“For us, real assets are kind of like three main food groups,” said Waller. “You have real estate, you have infrastructure, and you have transportation.
“Where we are for thinking about late-cycle investing and trying to insulate your portfolio from volatility, these core real assets should be the one that kind of do that job the best.”
Waller added: “The late-cycle point, which people keep talking about forever, means that diversification is ever more important. And we would put real assets in the diversifier category.”
Infrastructure will include long-term assets across a range of sectors such as renewables, regulated utilities and contracted power.
Real estate will meanwhile include residential retail, industrial and office properties from the US and Asia-Pacific market.
Meanwhile, transportation assets will be spread across aviation, marine, rail and energy logistics assets.
The global nature of the assets will give investors greater diversification and will largely avoid UK assets. In addition, the assets in the portfolio are likely to be lowly correlated with each other.
One example can be found in its real estate exposure.
“Interestingly in this product when it comes to real estate, we’re focusing on US core real estate and Asia Pacific core real estate,” he said.
“You’ll see that we’ve actually got a gap in the European side, the gap is there actually, where the investor feedback was that ‘we’ve already got our domestic or European allocation, can you provide us with something different?’”
The trust will invest in six institutional funds set up under a “boutique” structure aiming to provide an annual return of between 7-9 per cent, after fees.
It will pay out a quarterly dividend and aim to give investors an annual payout of 4-6 per cent.
JP Morgan’s head of investment trusts Simon Crinage said that the idea of the trust is to give investors access to these previously inaccessible capabilities as private investors.
And while it is a new trust, the group have been running the process for some time.
Seeking to raise £100m, Crinage said the reason why the firm had brought the fund to the market now was because of the firm's strong track record in the asset class.
“We’re not asking people to invest in a blind pool of assets here,” he said. “We already have our existing private strategy with over 500 private real assets and this investment trust over time will access that.
“This investment trust is coming almost late to the game, benefiting from the hard work that the existing investors in other strategies have done in building out the portfolios.”
The portfolio will be split into 80 per cent private real assets, with the remain 20 per cent in listed real assets.
“As I mentioned my team and I have been doing this for 20 years,” Waller said, “And we like to think about a few lessons along the way, and one of them is the right mix between public and private real assets.
“The benefit comes in terms of maximising your risk-adjusted returns from the fact that actually listed real assets can be quite different to private real assets.”
He explained that because listed assets experience their downturns first they will also rebound more quickly as well, something which Waller said the private sector lacked.
“So often they are moving in different directions and in quite complementary directions,” he said.
“If you can get into the right mix of your portfolio, and we’ve done a lot of testing around this, you can actually reduce your portfolio volatility as a whole and therefore maximise your risk-adjusted return.”