Real Assets Adviser

July 1, 2023: Vol. 10, Number 7

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From the Current Issue

Let’s stop talking about direct indexing and start talking about solutions

Direct indexing has become a bit of a buzzword in the financial press. It sounds interesting, but do you really understand the power and potential applications of direct indexing for your clients? How can you differentiate your practice and gain value with this investment solution when used within a unified managed account (UMA)?

With distress breaking out everywhere, how worried should investors be?

Conditions are ripe for a spike in commercial mortgage delinquencies. Rising interest rates have pushed loan coupons significantly higher, lenders are cutting back to varying degrees and property fundamentals are weakening amid slowing economic growth and consensus recession forecasts. Considering current circumstances, an uptick in defaults is a near certainty, but the exact amount is yet to be determined. The extent of the issue will depend on various factors analyzed in this study.

O Canada! Immigrants and investment in new housing flowing into country

The Canadian multifamily real estate market continues to exhibit some of the most compelling property sector fundamentals in North America. The demographic and economic characteristics underpinning the Canadian housing market have resulted in a perfect storm of low supply, high demand, and a growing shift to renting as the rising cost of homeownership puts purchasing out of reach for many prospective buyers.

When it comes to oil, investors are focusing on all the wrong things

Investors are being far too complacent about oil markets. After making a 14-year high of $130 per barrel in March, prices have steadily pulled back to $80. Concerns around the security of supply following Russia’s invasion of Ukraine have given way to worries about recession and sagging demand. Oil has nearly given back its entire move higher since the attack took place on Feb. 24, 2022.

Thematic investing in real estate: Global macro-forces complicating the investment calculus

For decades, investors and managers divided investments among real estate’s four food groups — office, retail, industrial and multifamily. It was easy and clean. Everyone understood what was being discussed. But times have changed. Global societies and economies are being shaped by powerful megatrends, from climate change and environmental sustainability to health and wellness. These shifts create compelling opportunities that thematic strategies can capitalize on by investing in assets that are well positioned to benefit from the structural changes underlying the theme. 

Profile: Marta Norton, CIO-Americas at Morningstar Wealth

Distill Marta Norton down to a single word and “persistence” is likely to rise to the surface. It expresses itself during her morning jogs, it is the fulcrum of her educational and professional success, it is what she looks for in the people she seeks to hire. It is the characteristic that matters most to her and proves elusive to many people. “A lot of us can work hard for a short period of time, but what can really drive success is the willingness to work hard always, without stopping,” she observes. “Work is hard, life is hard, and you have to be willing to get up and do it again the next day. Persistence is the real difference maker.”

Reefer madness: Marijuana prices keep tumbling, bumming investors

Cannabis prices have been eroding for two years running. That’s great news for those inclined to smoke or ingest pot, but for investors Mary Jane has been one expensive date. The upshot: Declining weed prices are forcing cannabis growers and dispensaries to shelve expansion plans. Intensifying the situation are rising interest rates, making borrowing increasingly expensive. Another never-ending malady exacerbating the situation is the lack of federal regulatory reform, particularly regarding cannabis players’ access to the banking system.

5 Questions: Investment opportunities in digital assets

Where do digital assets, cryptocurrency and the blockchain stand today in terms of investment opportunities? How can they best be understood and evaluated? Roger Bayston, EVP and head of digital assets at Franklin Templeton, offers his observations.

Talking Points: Quotations from people in the news

Neel Kashkari, CEO of the Federal Reserve Bank of Minneapolis: “The reserve currency is determined by investors all around the world. They vote for which economy they have the most confidence in. So, what happens in these debt-ceiling standoffs is it erodes confidence in the U.S. economy and our economic system, and it makes our competitors look a little bit stronger on the margin.”

The nation’s rich making the shift to private equity and real estate

How do the wealthy invest today, and what can we learn from them? While there is no single approach, there are lessons to be learned from how high-net-worth (HNW) investors manage their wealth and transfer it to future generations. From traditional stocks and bonds to commercial property and other alternative investments, how the wealthy invest — particularly during uncertain economic times — can provide lessons in not just preserving wealth but growing it.

The promise of blockchain technology: A computer scientist explains

People hear a lot about blockchain technology in relation to cryptocurrencies like bitcoin, which rely on blockchain systems to keep records of financial transactions between people and businesses. But a crash in public trust in cryptocurrencies such as TerraUSD — and therefore a massive drop in their market value — doesn’t mean their underlying technology is also worthless.

The high price of idle cash

Parking your fixed-income assets in cash may seem like a safe choice in today’s volatile investing environment, but it’s actually a risky proposition. Here are three reasons why sitting on the sidelines can be a dangerous game.

The satellite boom is far from over

The global satellite industry is booming and now dominates the rapidly expanding space economy. For 2023 and beyond, look for the sector to maintain its robust growth. The cost to build and launch satellites has declined sharply in recent years, which has led to their deployment in record numbers. In 2022, operational satellites increased more than 45 percent to over 7,000, according to Satellite Industry Association president Tom Stroup.

The growing opportunity in farmland investing

Allocations to farmland investments have grown significantly in the past decade as wealthy individuals, fund managers and institutions are beginning to invest in land across the United States. Billionaire Bill Gates recently became the largest private landowner in the country with a portfolio of more than 269,000 acres of farmland accumulated through Cascade Investments, his family office. Gates is not alone, however, as a wide range of asset managers, from state pension funds to sovereign wealth funds, direct more capital to farmland through direct land purchases and investments in existing funds.

Nuclear fusion? Not so fast

On Dec. 13, 2022, the U.S. Department of Energy announced a nuclear fusion breakthrough. For the first time in history, scientists at the Lawrence Livermore National Laboratory achieved fusion “net energy gain,” releasing more energy than was consumed in the reaction. Immediately, journalists wrote near-utopian articles describing imminent abundant clean energy. Jennifer Granholm, U.S. energy secretary, summed up the excitement: “This milestone moves us one significant step closer to the possibility of zero carbon abundance fusion energy powering our society.”

Research Roundup: July 2023

Brookfield Oaktree Wealth Solutions has issued a new report titled Understanding Private Credit: Sponsored Vs. Non-Sponsored Financing. It observes that interest rates are high and bank failures are causing banks to tighten lending standards, creating a surge in demand for private credit. Learn more here.

Nonbank lenders to the rescue

Over the past few years, particularly with the onset of the global COVID pandemic, the commercial real estate market has experienced both ups and downs — from expansion in sectors such as industrial and life sciences to turbulence in office and some areas of multifamily. Now, a period of rapid interest rate increases and the recent collapses of Silicon Valley Bank, Signature Bank and First Republic Bank have created a significant liquidity gap in the commercial real estate market.

Hyper-personalization comes to advisory firms

In recent years, the financial services industry has seen a shift toward hyper-personalization in wealth management. Hyper-personalization succeeds when insights beyond traditional financial planning, which are typically generic assumptions and projections based on age, income and other demographic factors, are presented consistently to the client through digital mediums such as a client portal, compliant texting updates and other digital mediums.

How to stop floating wind turbines from drifting away

Growing demand for cleaner energy sources means offshore wind farms are being built all over the world. More than 5,000 turbines must be installed each year until 2050 to limit global warming to 1.5 degrees centigrade. But in certain regions it is difficult to build wind turbines directly on the seafloor due to the steep drop-off of the continental shelf. Even in areas with shallow coastal waters, such as the North Sea, congestion from shipping lanes, fishing activities, marine protected areas, tourism and existing energy infrastructure all impede new turbine construction. So, it’s hardly surprising that many of these new turbines will have to be located in deeper waters further out to sea.

AI and the investing process

By mid-2023, no acronym on Wall Street had become hotter than “AI” for artificial intelligence. Not only were investment managers scouring the world for AI plays, but financial advisers were increasingly touting AI as a means for boosting investor results. The expression “the future is now” may be a cliche, but already serious financial advisers, including the Big Four accounting and advisory giants, are touting AI services to investment houses to refine their money-placing strategies.

Investors feel the chill: The cold truth about what’s hot in niche real estate

The operative phrase here is this: cold storage. It’s hot among investors. The metrics tell the tale: National cold storage development hit an all-time high of 9.8 million square feet by the end of 2022, driven by a proliferation of users and operators as the sector grows and evolves. The number of cold storage establishments grew 8.6 percent from 2020 to 2021, and an additional 7.5 percent from 2021 to the first half of 2022, eclipsing the annual average of 2.2 percent observed from 2013 to 2020.

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