getting the what to meet the why indexing real assets€¦ · for financial professionals. not for...

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

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INTRODUCTION


WHY DISCUSS REAL ASSETS NOW?

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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


WHAT ARE REAL ASSETS?

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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

http://www.investopedia.com/terms/r/realasset.asp

http://www.brookfield.com/_Global/42/img/content/File/marketing/private_funds/2013/BAM_WhitePaper_Nov_2013_F_PR.pdf


WHAT ARE REAL ASSETS?

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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.


VIEWS ON WHAT CONSTITUTES REAL ASSETS VARY

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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.


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


WHY DO INVESTORS USE REAL ASSETS?

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Most plans agree real assets are helpful for diversification and

inflation protection.


INDEXING APPLIES IN MANY AREAS OF PLANNED ALLOCATION GROWTH IN REAL ASSETS

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“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


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.


REAL ASSETS TOGETHER MAY PRESERVE CAPITAL

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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


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.


GENERAL DISCLAIMER

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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

[email protected]

THANK YOU

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