We are excited to release our 2015 Real Assets Outlook, which can be viewed here. Adding real assets to a strategic asset allocation has historically provided inflation protection while also diversifying the portfolio and lessening drawdowns. In the 2015 Real Assets Outlook we highlight the following:
- Private real estate appears favorable relative to other inflation protecting asset classes, due to improving fundamentals, although competition in this space is strong and valuations are relatively rich. The economy and GDP growth are dominant drivers of real estate, so real estate exposure may allow the investor to benefit from continuing economic progress even if that continues to occur in the absence of inflation shocks. The value added style appears particularly attractive currently, given the strong demand for purchasing stabilized assets.
- Despite the sharp decline in oil prices and dampened global inflation expectations we believe commodities can still play their role of portfolio diversification and protection against unanticipated inflation. We recommend clients maintain their strategic allocation to commodities, preferably through active management strategies.
- Master Limited Partnerships (MLPs) suffered a 20% correction since their August highs, driven by the decline in oil prices. As the majority of MLPs are midstream (pipelines, transport, etc.), the pullback may have been more extensive than truly warranted from a long term perspective. Investors who wish to make a strategic allocation to MLPs may find that the current environment is relatively attractive on a timing basis. However investors should be mindful of the complexity of these structures, and of the relatively specific bet they are making through taking an MLP position. This may mean that many investors will appropriately decide that MLPs remain outside their portfolio despite attractive timing.