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For Financial Professionals. Not for Public Distribution. PROPRIETARY. Permission to reprint or distribute any content from this presentation requires the written approval of S&P Dow Jones Indices.
February 2015
Getting The WHAT To Meet The WHY
Indexing Real Assets
For Financial Professionals. Not for Public Distribution. PROPRIETARY. Permission to reprint or distribute any content from this presentation requires the written approval of S&P Dow Jones Indices. 2
DEFINING REAL ASSETS
WHY USE REAL ASSETS?
INDEXING WITH REAL ASSETS
01
02
03
INTRODUCTION
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WHY DISCUSS REAL ASSETS NOW?
3
Over the past five years, investment in real asset strategies has
increased 325%, according to eVestment Alliance.
• 80% target 1-15% in real assets
• 60-70% endowments, foundations and
public plans are underinvested
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WHAT ARE REAL ASSETS?
4
In an investment concept, a real asset is defined as a good that is independent from variations in the
value of money. 1
Real assets are physical or tangible assets that have value, due to their substance and properties.
Their value is derived from a contractual claim on an underlying asset, which may be real or intangible.
For example, commodities and property are real assets, but commodity futures and ETFs, as well as
real estate investment trusts, constitute financial assets whose value depends on the underlying real
assets. 2
1 Source: Deutsche Bank. DB Research. June 6, 2012
2 Source: Investopedia http://www.investopedia.com/terms/r/realasset.asp, viewed on 23.5.2013
Real Assets are often defined as physical or tangible assets that tend to provide a “real return”, often
linked to inflation. This definition encompasses a wide range of potential investments, including real
estate, infrastructure, timberlands, agrilands, commodities, precious metals and natural resources.
Additionally, real-return financial instruments, such as inflation-protected bonds, are often included in
the Real Asset conversation as well.3
3 Source: Brookfield
http://www.brookfield.com/_Global/42/img/content/File/marketing/private_funds/2013/BAM_WhitePaper_Nov_2013_F_PR.pdf viewed on 21.1. 2015
There are many definitions for real assets.
PIMCO defines real assets as its own asset class that aims to have either an explicit or implicit return
correlation to inflation. Real assets include inflation-linked bonds, commodities and real estate or
some combination of those assets. This can potentially enhance portfolio diversification, mitigate
inflation risk and provide more stable real (after-inflation) returns. 4
4 Source: PIMCO. http://www.pimco.com/EN/Solutions/Pages/DiversifiedRealAsset.aspx?origin=Strategies
For Financial Professionals. Not for Public Distribution. PROPRIETARY. Permission to reprint or distribute any content from this presentation requires the written approval of S&P Dow Jones Indices.
WHAT ARE REAL ASSETS?
5
According to BNY Mellon, real assets are
primarily TIPS, REITs, commodities and
natural resource equities.
Source: BNY Mellon. http://dailyalts.com/dc-plans-add-alternatives-
according-bny-mellon/
Source: Blackrock, The Economist Intelligence Unit.
https://www.blackrock.com/institutions/en-
us/literature/whitepaper/inst-real-assets-res-exec-summ-111214.pdf
According to Blackrock, real assets are
primarily real estate, infrastructure and
commodities.
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VIEWS ON WHAT CONSTITUTES REAL ASSETS VARY
6
Source: Greenwich Associates 2014 Institutional Real Assets
Research. Based on 110 respondents in 2014.
Most consider real estate, infrastructure and raw
materials to be real assets.
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REAL ASSETS HELP INVESTORS MOVE TOWARDS RISK - BASED INVESTING
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From the high correlations experienced through the recession scenarios of
2001-2003 and 2007-2009, many investors no longer allocate by traditional
asset classes defined by security type but by risk type.
Source: Cerulli’s Investment Management Report, 2013. Cerulli Associates, in partnership with Institutional Investor Institute
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WHY DO INVESTORS USE REAL ASSETS?
8
Most plans agree real assets are helpful for diversification and
inflation protection.
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INDEXING APPLIES IN MANY AREAS OF PLANNED ALLOCATION GROWTH IN REAL ASSETS
9
“We are currently evaluating allocations to real assets. We are positioning the portfolio for an inflation
environment, building our portfolio for a diversification benefit.” ~Public Fund
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DEFINING REAL ASSETS WITH INDICES
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Two important characteristics of real assets in indexing are that the
constituents are public and meet liquidity requirements.
Source: S&P Dow Jones Indices. Based on monthly data from Dec. 2004 – Dec. 2014. Real Asset Composite is a hypothetical index and does
not exist. Historical performance does not indicate futures results.
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REAL ASSETS TOGETHER MAY PRESERVE CAPITAL
11
The portfolio with real assets historically provided a diversification
benefit.
Portfolio 1 Portfolio 2 Portfolio 3
S&P 500 TR 100% 60% 50%
Barclays Global
Aggregate (Corps) 40% 40%
Real Asset Composite 10%
Annualized Return 7.7% 6.3% 6.2%
Annualized Risk 14.7% 10.6% 10.4%
Sharpe Ratio 0.52 0.59 0.60
Historical Performance for Hypothetical Portfolios from 1/05-12/14
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REAL ASSETS MAY PROVIDE INFLATION PROTECTION
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Source: S&P Dow Jones Indices and/or its affiliates and ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt Data from Jan
2004 to Dec 2014. Past performance is not an indication of future results. This chart reflects hypothetical historical
performance. Please see the Performance Disclosure at the end of this document for more information regarding the
inherent limitations associated with backtested performance.
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For Financial Professionals. Not for Public Distribution. PROPRIETARY. Permission to reprint or distribute any content from this presentation requires the written approval of S&P Dow Jones Indices. 24
Jodie Gunzberg, CFA Global Head of Commodities
jodie.gunzberg@spdji.com
THANK YOU
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