Real Assets Adviser

March 1, 2016: Vol. 3, Number 3

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From the Current Issue

A Tale of Two Regions: Why wind power is booming in Texas and losing momentum in the West

If Charles Dickens were an energy analyst, he would probably say the past 10 years have been the best of times and the worst of times for wind power in America.

Most observers would guess we are referring to the on-and-off nature of the federal Production Tax Credit, which has created a chaotic investment environment for wind project developers and financiers. Yet comparing the two regions with similar total installed wind capacity adds another twist to the story: the importance of good transmission planning.

The Overseas Opportunity: Seventy percent of all investable, publicly traded companies are domiciled in foreign countries

Looking back on now the third calendar year in a row during which the S&P 500 outperformed the rest of the world, many U.S. investors are perhaps wondering why they should venture outside of their home market. Add recent headlines from abroad, including geopolitical conflicts, Europe’s refugee crisis, softening global growth, and the recent slide in China’s markets, and you start to see investors clicking the heels of their ruby red slippers, hoping for a return home to Kansas. While it may be true that there is no place like home, there continues to be a place for international equities in investors’ portfolios. 

The Metaphysics of Money: The history of economic calamities has taught us that all that glitters is not necessarily gold

It was the late novelist and philosopher Robert Anton Wilson who said: “Convictions make us convicts.”

It’s a generalization. Some convictions are timeless. But there are many convictions that people cling to despite decades of mounting evidence to the contrary. Among that group are people — including at least one presidential candidate — committed to going back to the gold standard because they believe it to be the elixir that will solve all of our economic problems.

Second Act: Russell Investments executive Brian Meath got cheeky, and then he got the job

When Russell Investments expressed interest in Brian Meath coming to work for the giant Seattle-based global asset manager, the young quantitative analyst thought his riposte was rather cheeky: Sure, if I can work on global equities from your London office.

Rather than regarding his reply as high-handed, the Russell Investments’ recruiter on the case told Meath that he could begin covering global equities immediately and the firm would relocate him to London in less than a year.

Score a victory for the brashness of youth.

The Endowment Model of Investing: This style of investing (with an emphasis on real assets) has been used to great success by institutional investors, and is now making its way to RIAs

Most in the investment world have heard how David Swensen, chief investment officer at Yale, has left his university well endowed, expanding its coffers from $1 billion when he was hired in 1985 to $23.9 billion in June 2014.

His investment strategy, since termed the “endowment model,” expanded the purview of a traditional 60/40 stocks and bonds portfolio to include alternative assets, namely hedge funds, private equity and real assets. The model also focused on maximizing the inherent value of an endowment’s perpetual investment horizon by investing in illiquid assets that can, over time, provide an above-market return.

Every decision he made seemed to come up roses. In the decade ended June 2008, a period in which the S&P 500 delivered only 1.95 percent returns annually, his strategy yielded a per annum return of 16.3 percent.

The Public-Private Disconnect: Valuations for public and private real estate have diverged, and so has market sentiment

Public equity markets have been volatile recently, with a lot of downward movement. But even as stock markets have declined — including public real estate equities — private real estate values have appeared to hold steady.

Since early 2015, valuations for public and private real estate have diverged, especially in the U.S. markets, where, according to Peter Zabierek, CEO of Presima, “the divergence is the most striking and has been for a while.”

The Art of Real Assets: Collecting fine art as a meaningful component of an investment portfolio

In 1979 I started pursuing a career as an artist. Alas, the prospect of many years of financial suffering was not very appealing, so I decided to go to law school and learn to represent artists in matters of contracts, tax, estate planning and investments. During the intervening decades I have enjoyed a 34-year career advising high-net-worth clients (including artists) on all matters of wealth planning.

The Lowdown on Low Oil Prices: More economic stimulus and less pain than many observers realize

The oil supply glut has deepened these past few weeks since OPEC decided not to restrict crude production, citing expectations for an expansion in global demand of 1.3 million barrels per day in 2016 alongside a contraction in non-OPEC supply. In the United States, mild weather and still-elevated unconventional production are contributing to the market’s oversupply, depressing prices.

REIT Trends to Watch in 2016: Be alert to interest rate and tax code changes

Underlying real estate property fundamentals are healthy and asset valuations are high. However, interest rates are moving higher and a market misalignment has been created where many REITs are trading below net asset value. Tax, policy and legislative changes are also helping set the stage for REIT activity this year. With all this in mind, Trepp LLC has listed some trends that it thinks will characterize the REIT market in 2016.

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