Real Asset Strategies, LLC (RAS) White Paper
Michael Ashton and Bill Peterson have written an extensive white paper on liquid real assets: what they are, their importance, why you might want to consider them for part of your portfolio, constructing a portfolio of real assets and details on the RAS strategies. Distribution is restricted to investment professionals or Accredited Investors (as defined in Rule 501 of Regulation D of the SEC). Please utilize the Contact section to request a paper (please confirm your status as an investment professional or Accredited Investor with your request). The Executive Summary is below.
Large institutions have long invested in illiquid real assets, primarily for diversification and inflation protection benefits. Real Asset Strategies offers liquid alternatives with a focus on these same benefits in publicly traded securities and with reasonable fees. Commonly, liquid real asset allocations have been to one or two investments in something perceived as tangible, but unfortunately these real assets did not always result in the diversification benefits presumably sought in such an allocation.
- We offer actively-managed real asset strategies that include a range of investments that we believe will:
1) add inflation protection 2) help diversify a balanced portfolio
- In developing our strategies, we started with these same two desirable attributes in mind to determine which investments to include. We did not include investments often found in other real asset strategies if we did not believe they would deliver significant diversification or inflation protection.
A balanced portfolio of equities and fixed income has worked very well, returning about 10% per year average from 1980 through 2018 with bonds returning about 7% and equities around 11%. This will be difficult to repeat we believe with current bond and dividend yields, valuations and GDP growth. Real Asset Strategies believes a dedicated allocation to real assets can increase the efficiency of a portfolio comprised of equities and bonds without sacrificing long-term returns. We also know that the performance of these assets can be volatile and thus static allocations can be less than optimal, so we devised ways to intelligently vary exposures.
Why real assets now? Isn’t inflation low? Haven’t real assets performed very poorly over the last decade? Yes and yes. But please consider:
- If you cannot predict the future, perhaps it is best to prepare for possible economic scenarios.
- The performance of certain real assets prior to recessions (at least since the 1970s) have actually been quite strong, a recession prediction doesn’t mean that real assets should be ignored.
- Markets are fairly efficient. By the time inflation is obvious, it will probably be too late: assets will already be pricing in the increased probability of inflation.
- As an investor, and purchaser of goods and services, you have inflation risk on two different fronts.
- The performance of real assets compared to equities and fixed income in the last decade or so has created some fairly extreme valuation comparisons.
We do not know how this grand global experiment with debt will end but suspect someday valuations of equities and nominal bonds could be affected. If you are seeking a diversifier for your portfolio, one that also provides inflation protection and is offered at a reasonable fee, then our actively managed real asset strategies we believe are worth considering.