Real Assets Adviser

June 1, 2020: Vol. 7, Number 6

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From the Current Issue

Tankers the big winners of 2020 oil crash

There are now roughly 3 billion people in some form of a lockdown around the world, resulting in an unprecedented drop in global demand for jet fuel, gasoline and diesel. That alone would have been enough to send oil prices plunging, but Saudi Arabia’s decision to start a price war with rival producers and flood the market with crude — just as U.S. output had hit a record — has made things a lot worse.

Does market timing work? Nine decades of market data offers some insights

The recent surge in market volatility and associated plunge in stock prices have been quite remarkable. In less than four weeks, the S&P 500 Index plummeted about 30 percent from a record high on Feb. 19, signaling the arrival of a bear market and an end of a remarkably long 11-year bull run for U.S. equities. Some investors are wondering if it’s too late to sell their stocks; others are asking if it’s an appropriate time to start picking up shares at current marked-down prices. In this context, we thought now is an opportune time to bring some research discipline to bear on the rather controversial (and emotional) topic of stock-market timing.

U.S. oil demand down almost 20m barrels per day

The coronavirus-related decline in economic activity has dealt a body blow to U.S. petroleum deliveries, plummeting by 19.4 million barrels per day in March, according to a report from the American Petroleum Institute (API). When compared with the same months of 2019, February and March petroleum demand decreased 4.6 percent and 4.0 percent, respectively, and represents the lowest March demand since 2015.

Nursing home sector now under full COVID-19 assault

If an industry could be dubbed a confirmed coronavirus case, that industry would be the nursing home sector. After senior housing — of which nursing homes are one property type — came off a record year of more than $7 billion in private transactions during 2019 and entered 2020 with strong investor interest, the coronavirus struck nursing home facilities with magnum force, killing more than 25,000 of its residents as of this writing and revealing a host of problems dogging the business, including crowded facilities, overwhelmed staff members and a shortage of personal protective equipment.

Who really runs the United States: Also, is urbanization becoming a dead-end for thematic investors?

It has become apparent that governors and mayors of major U.S. cities are running the country. Even before President Trump washed his hands of so many aspects of the coronavirus pandemic, it was evident the Dems versus GOP gridlock in Congress made progress impossible. States have since learned they must act where the federal government has no ability or inclination to act. This isn’t necessarily bad news. Cities and states understand their problems better than the feds and can apply solutions closer to the ground, getting a read on their efficacy more clearly and acting to modify legislation more quickly. What’s more, the state-level approach is a more portfolio-style method to problem solving, with the states representing potentially 50 different approaches to the big issues the governments face. What’s more, states then have the ability to quickly emulate successful programs that have been demonstrated effective in other states.

The global oil glut: Investors should beware of the Saudi-Russia OPEC deal

Here’s the good news: Russia and Saudi Arabia — groaning under the weight of their flood-the-market petroleum war, right at a time when demand for oil has plunged more swiftly and more deeply than at any point in history because of the COVID-19 economic shutdown — have agreed to end their feud and lower their daily output of crude by slashing production by a record 9.7 million barrels per day. The expectation is that per-barrel prices will be driven higher and give some relief to struggling U.S. oil producers.

Profile: Mitch Kovitz, co-founder, CEO and co-CIO of the value investing firm Kovitz

One could easily have assumed Mitch Kovitz had mastered the game when he was hired by Arthur Andersen & Co. and started his career in an office eight floors below his father, an executive at Rothschild Investment Corp. The younger Kovitz would regularly trek up the elevator to visit his father and his associates in that Chicago office building. The younger Kovitz had time on his hands because it was 1989 and there was a recession in progress, triggered by the savings and loan crisis and infamous bad actors such as Charles Keating and excesses including a million-dollar chandelier. Working in the real estate division of Arthur Andersen had slowed to a crawl for the young Kovitz.

Active beats passive: And the outperformance of quality managers grows during larger market losses

Given the current economic conditions, many of us are also taking the time to ensure our financial portfolios are well taken care of. For that reason, we took the time to investigate the evidence for or against active management outperformance during market downturns. The conclusion is strong: Quality active managers have significantly outperformed the broad market during the worst four market downturns over the past 25 years.

The numbers keep adding up: Data center infrastructure market to hit $6.7b in five years

The $1.7 billion global data center infrastructure management market is expected to grow to $6.7 billion by 2025, according to a new report published on The surge is expected to be driven largely by increasing demand for the cloud and data traffic moving from and within data centers, resulting in 25.8 percent in annual growth over the forecast period of 2019 to 2025.

Why global portfolios give investors an edge

As real estate continues to mature as an asset class, an increasing number of investors are expanding the geographical scope of their portfolios. The benefits of international diversification are numerous, according to Chris Miers, senior research consultant on the real assets research team at NEPC, who recently participated in a video interview with Institutional Real Estate, Inc., parent company of Real Assets Adviser.

5 Questions: Hedge funds in the age of volatility

The use of hedge funds in financial portfolios has grown dramatically in recent decades, taking off in the 1990s when high-profile money managers deserted the mutual fund industry for fame and fortune as hedge fund managers. Since then, the industry has grown substantially with total assets under management valued at more than $3.25 trillion. According to Barclays, the total AUM of hedge funds jumped by 2,350 percent between 1997 and 2019.

There is one sport tailor-made for pandemic conditions

It has been a long, dark night of the soul for the $70-plus billion U.S. sports business, with no end in sight. Indeed, the gathering of tens of thousands of people in a single venue is likely the last of our society’s social or cultural functions to receive the greenlight for reactivation.

The bull has turned gold: The yellow metal remains severely underrepresented in portfolios

Gold is on the cusp of breaking out to all-time highs in U.S. dollars and has already done so in virtually every other currency. Gold mining stocks continue to lag the metal and represent a compelling investment opportunity at this moment. The COVID-19 pandemic panic was merely the black swan that punctured a financial market asset bubble that took almost a decade to inflate.

Roundtable: A tale of two questions

Roundtable: Question No. 1: Many offices and retail spaces are empty, the ability to pay rent is being strained by the COVID-19 shutdown, and we appear headed for a long-term economic slowdown. What do you see as the economic and market forces at play that will have a significant impact on real estate values?

Balancing liquid and illiquid alternatives

Alternative asset classes, such as real estate and infrastructure, have historically featured specific attributes relative to traditional stocks and bonds, such as uncorrelated returns and diversification. However, investing in alternatives can present challenges in certain market environments depending on the degree of liquidity. For example, right now the investment community is combatting the impact of the COVID-19 global pandemic, which has raised concerns for investors with exposure to both illiquid and liquid alternatives. The unprecedented economic, social and political toll felt from COVID-19 has resulted in dramatic volatility for publicly traded liquid investments, while at the same time restricting access to capital locked up in illiquid investments. As such, investors need to understand and prepare for events such as this.

Oil and gas: Where do we go now?

As a result of COVID-19, oil prices have experienced substantial changes. In contrast to 2019 when West Texas Intermediate (WTI) prices were $55 to $60 per barrel, we believe such prices will retest a $10 per barrel level in upcoming months, and maybe settle out in a $15 to $25 range, as a result of the pandemic and its effect on the global demand for crude. Prices for natural gas, while not as affected, have also come down recently, with NYMEX prices of $1.60 to 1.90 per million cubic feet observed. While the futures markets anticipate a pricing recovery to some degree in 2021, advisers’ evaluations of oil and gas offerings must account for recent movements in pricing to serve the interests of their stakeholders.

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