Investments 

Real assets offer solution to portfolio 'challenges'

 

Advisers should consider using real assets to add diversification to their clients' portfolios due to the problems facing fixed income, according to Luke Hyde-Smith.

Mr Hyde-Smith is the manager of the Waverton Real Assets fund, which was launched in November 2018 and which targets a long-term objective of inflation plus 4 per cent.

He said the fund was launched in response to concerns that equities and bonds are becoming increasingly correlated, meaning a traditionally constructed portfolio will not have the benefits of diversification.

Mr Hyde-Smith said: "We launched the real assets strategy as a solution to the challenges facing investors as they look out at the traditional portfolio construction process.

"It has been a remarkably good run for traditional asset classes. A 60/40 equity/bond portfolio has delivered you approximately 7 per cent per annum compound in sterling terms over the last 25 years and we believe, while it remains favourable for equities over the long term, it may be difficult for them to achieve the kind of returns akin to history going forward.

"But much more importantly the fixed income element of the portfolio appears to be distinctly challenged from a return perspective. And not only that, we are noting that traditional government bonds are failing to add the diversification benefits that they once did.

"So we believe an allocation to real assets can help investors mitigate some of these disadvantages that are apparent in a passive allocation to traditional fixed income and equities."

Mr Hyde-Smith added that the investment universe for his fund to choose from had increased "enormously", with a range of different structures and vehicles which allow investors to gain access to real assets.

From a liquidity point of view, he added that due to the fact the fund was a Ucits, and the regulation surrounding that, all investments had to be transferable, listed or other Uctis funds.

Mr Hyde-Smith said: "It is important to note we will not be owning the underlying bridges or properties or real estate but we will be buying companies which manage those assets on our behalf."

damian.fantato@ft.com