The Many Paths to Real Asset Investing

Transcription

1 #InsideAlts The Many Paths to Real Asset Investing MODERATOR Michael D. Underhill Chief Investment Officer Capital Innovations, LLC PANELISTS John Love Portfolio Manager U.S. Commodity Funds Trey Reik Senior Portfolio Manager Sprott Asset Management Jeffrey Sherman Portfolio Manager Double Line

2 Gold Investment Thesis: Default or Debase Total U.S. Credit Market Debt as % of GDP 400% 375% 350% 325% 300% 275% 287% in 1933 when FDR devalued U.S. dollar 40% 258% 2000 Stock market top 332% today 250% 225% 200% 175% 150% 125% 176% 1929 stock market top 100% Last Update: Q Source: Federal Reserve Z.1 Report, U.S. Bureau of Economic Analysis, Legg Mason (data prior to 1952)

3 Gold Investment Thesis: Default or Debase Growth in U.S. Credit Market Debt ($billions) Last Update: Q Source: Federal Reserve Z.1 Report

4 Gold Investment Thesis: Remonetization Total 176,100 tonnes $7.360 trillion Jewelry 85,900 tonnes $3.590 trillion Central Banks 32,393 tonnes $1.353 trillion Investable Gold Global Financial Assets $2.417 trillion $220 trillion 1% migra3on from financial assets to gold = 91% of available stock $1300/oz gold price assumed Metric tonne = 32,151 troy ounces Troy ounce = grammes Source: GFMS Gold Survey 2014

5 Gold Investment Thesis: Remonetization % 17.82% % Market Capitalization of Investable Gold to U.S. Financial Assets Last Update: Q Source: Citadel Research & Analytics

6 The investment universe and alternative investment space Farming Agribusiness Forestry Residen3al Commercial Prime/peripheral Transporta3on Communica3ons Water Oil & Gas Electric power Renewables Mines Trading

7 The forestry and the food & agriculture alternative investment space Global AuM by Product $Trillions and % of total Alternatives Universe % Forestry, Food & Agri % Alternatives Active specialties 10 % 25 % Forestry + US$ 50 Billion 68 Solutions & LDIs 4% Food and Agriculture + US$ 50 Billion Traditional active core assets 46 % Alternatives include: About $100 Billion equals to: Passives and ETFs 15 % 2013 Hedge Funds Private Equity Infrastructure Commodity Funds % of alternative assets About 0.1% of global AuM Source: BGC global asset management 2014, Capital Innovations, LLC

8 Global Real Assets: Objectives Objective 1: Inflation Protection (Short Term to Long Term) Short-Term Protection Commodities Agriculture TIPS Timber Infrastructure Real Estate Objective 2: Diversification/Volatility Reduction (Low to High) Non-Core Real Estate Commodities TIPS Timber Agriculture Core Real Estate Infrastructure Low Objective 3: Long-Term Return Potential (Low to High) Commodities Agriculture Core Real Estate Infrastructure Non-Core TIPS Timber Real Estate Low

9 Case for Maintaining a Strategic Allocation to Real Assets. May 31, May 31, 2015* 0% Diversified Real Assets 10% Diversified Real Assets 20% Diversified Real Assets 10% 20% 40% 40% 40% 60% 50% 40% 0% Diversified Real Assets 10% Diversified Real Assets Annual Returns 7.0% 7.2% 7.5% Volatility (Standard Deviation) 9.3% 8.9% 8.6% Sharpe Ratio % Diversified Real Assets *Please see disclosure page 8

10 Asset Allocations for Most Recently Reported Fiscal Year for the Four Largest Endowments* Real Assets 1 Private Equity Absolute Return Fixed Income and Cash Equity 2 Harvard Yale University of Texas Stanford 16% 10% 23% 20% 5% 25% 17% 0% 10% 21% 20% 22% 33% 18% 19% 31% 62% 25% 23% Assets Under Management ($Billions) $36.4 $23.9 $25.7 $21.4 Market Value Ranking Data as of the most recent published annual report for each endowment. 1 Includes real estate, natural resource equities, commodities, infrastructure and inflation linked bonds. 2 Equities include: U.S. equity, non-u.s. equity and includes emerging markets. 3 Source: National Association of College and University Business Offices (NACUBO) as of the most recent fiscal year end. Allocation scheme for other funds within the endowment may differ. Source: Universities Annual Reports, National Association of College and University Business Officers (NACUBO). Fiscal Year 2014 ended June 30, 2014 for Harvard, Yale, University of Stanford and August 31, 2014 for University of Texas.

11 Real Assets: Stay the Course!! John Maynard Keynes once said that by a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.! While he wrote this in 1919 in response to post-world War I economic policies, we think his comment remains valid today, given that the developed world is again awash in indebtedness much of it government-related.! Moreover, with growth lagging as well as a general unwillingness to cut social benefits, some amount of heightened inflation trends could be needed to lower the debt burden at some point.! If our macro assessment is right, then implementing an inflation hedge that protects against Keynes alleged confiscation of wealth would therefore make sense, we believe. At the moment, we continue to favor assets that can provide yield, growth and inflation protection.

12 Disclosures PAGE 9: At May 31, Source: Bloomberg, Thomson Reuters Datastream and Capital Innovations. Performance data quoted represents past performance. Past performance is no guarantee of future results. There is no guarantee that any historical trend illustrated above will be repeated in the future, and there is no way to predict precisely when such a trend will begin. The information presented above does not reflect the performance of any fund or other account managed or serviced by Capital Innovations, and there is no guarantee that investors will experience the type of performance reflected above. An investor cannot invest directly in an index and index performance does not reflect the deduction of any fees, expenses or taxes. Stocks are represented by MSCI World Index. Bonds are represented by Barclays Capital U.S. Aggregate Bond Index. Diversified Real Assets are represented by an equally-weighted blend of Real Estate, Commodities, Natural Resources Equities, and Infrastructure. Real Estate is represented by FTSE NAREIT Equity REIT Index through February 2005 and FTSE EPRA/NAREIT Developed Index thereafter. Commodities represented by S&P GSCI through July 1998 and Dow Jones-UBS Commodity Index thereafter. Natural Resource Equities are represented by a 50/50 Blend of the Datastream World Oil & Gas and Datastream World Basic Materials through May 2008 and the S&P Global Natural Resources Index thereafter. Infrastructure is represented by 50/50 Blend of Datastream World Pipelines and Datastream World Gas, Water, & Multi-Utilities through July 2008 and the S&P Global Listed Infrastructure Index thereafter. (a) Standard deviation is a commonly used statistical measure of volatility. (b) Sharpe ratio measures risk-adjusted performance. The higher the Sharpe ratio, the higher the risk-adjusted performance and vice versa. GENERAL: Past performance does not guarantee future results. It should not be assumed that any investment in these securities was, or will prove to be, profitable, or that the investment decisions made by Capital Innovations, LLC in the future will be profitable or equal to the investment performance of securities referenced herein. Returns for periods less than one year are not annualized. This material is intended for institutional investors. Not for public distribution. Capital Innovations and its affiliates are not responsible for its use by other parties. Any securities identified herein are not necessarily held by Capital Innovations, LLC for all client portfolios, and their mention should not be considered a recommendation or solicitation to purchase or sell these securities. This is not to be construed as an offer to buy or sell any financial instruments and should not be relied upon as the sole factor in an investment making decision. As with all investments there are associated inherent risks. Please obtain and review all financial material carefully before investing. This does not constitute a recommendation of the suitability of any investment strategy for a particular investor. Capital Innovations, LLC is not a law firm, accountant or tax advisor. For legal and tax-related matters, we recommend that you seek the advice of a qualified attorney, accountant or tax professional. Returns are presented gross of management fees. Actual returns will be reduced by investment advisory fees and other expenses that may be incurred in the management of the account. The collection of fees produces a compounding effect on the total rate of return net of management fees. As an example, the effect of investment management fees on the total value of a client s portfolio assuming (a) quarterly fee assessment, (b) $1,000,000 investment, (c) portfolio return of 8% a year, and (d) 1.00% annual investment advisory fee would be $10,416 in the first year, and cumulative effects of $59,816 over five years and $143,430 over ten years. The maximum investment management fee schedule for equity accounts is as follows: 1.00% on assets to $50,000,000; 0.80% on next $50,000,000; and 0.70% on assets greater than $100,000,000. Actual investment advisory fees incurred by clients may vary. Market indices have been provided for comparison purposes only. They are unmanaged and do not reflect any fees or expenses. The index benchmarks are referred to for comparative purposes only and are not necessarily intended to parallel the risk or investment approach of the portfolios included in the composites. The Alerian MLP Index is an index created and maintained by Alerian. Index characteristics, methodology, and additional information can be found at The S&P Indices are indices created and maintained by Standard & Poor s. Index characteristics, methodology, and additional information can be found at Capital Innovations, LLC is an independent, privately held investment advisory firm structured as a limited liability company that is wholly owned by professionals actively involved in managing the business. Investment management services are provided by Capital Innovations, LLC, a registered investment advisor. Additional information about Capital Innovations, including its most recent Form ADV brochure, is available upon request. The enclosed information has been developed internally and/or obtained from sources the Firm believes to be reliable; however, Capital Innovations does not guarantee the accuracy, adequacy, or completeness of such information.

13 #InsideAlts The Many Paths to Real Asset Investing MODERATOR Michael D. Underhill Chief Investment Officer Capital Innovations, LLC PANELISTS John Love Portfolio Manager U.S. Commodity Funds Trey Reik Senior Portfolio Manager Sprott Asset Management Jeffrey Sherman Portfolio Manager Double Line