Real assets

Last updated

Real assets is an investment asset class that covers investments in physical assets such as real estate, energy, and infrastructure. Real assets have an inherent physical worth. [1] Real assets differ from financial assets in that financial assets get their value from a contractual right and are typically intangible.

Contents

Real assets are categorized into three categories:

Real assets are appealing to investors for four reasons: high current income, inflation protection / equity appreciation, low correlation to equity markets, and favorable tax treatment. [2] [3] [4]

Background

Investing in real assets has existed since the advent of property ownership. However, public investment only began in 1965, when the first publicly traded REIT (Continental Mortgage Investors) became listed on the NYSE. [5] This REIT structure has become the dominant legal structure to invest in real estate. The first publicly traded MLP occurred 16 years later, when Apache Petroleum Company listed. The MLP structure has become popular for energy and infrastructure. Combined, these two legal structures been critical to the expansion of real assets as a viable asset class because they are pass-through tax structures, unlike a traditional publicly traded C-corp. However, the trade-off is that at least 90% of the income must be distributed to investors (which is attractive for investors but means that the company has limited ability to retain earnings for growth). That being said, there are some real asset companies structured as C-corps. Moreover, after the 2017 Tax Cuts and Jobs Act, some MLPs and REITs are revisiting their structure.

Today, real assets are a massive publicly traded asset class.

Additionally, there are multiple much smaller sectors that fall in real assets

Public Equity Investing in ETFs

Historically investors have gained exposure to this asset via investing in companies or specific strategy (such as REIT or MLP fund). However, in the past few years, several public funds have been started focused on the overall real asset market. The benefit to the individual investor for investing into a single real asset fund to get exposure into the asset class is immediate diversification at a low cost. The two major ETFs in the real asset space are:

For investors interested in comparing these two ETFs, Indxx did a write-up in October 2019 [10]

On the mutual fund side, real asset funds include Nuveen Real Asset Income Fund, T Rowe Price Real Assets Fund, and DWS REEF Real Assets Fund.

In additional several of the largest investment firms have launched private real asset investment strategies for institutional investors. These include Carlyle, KKR and Oaktree.

See also

Related Research Articles

A real estate investment trust is a company that owns, and in most cases operates, income-producing real estate. REITs own many types of commercial real estate, including office and apartment buildings, studios, warehouses, hospitals, shopping centers, hotels and commercial forests. Some REITs engage in financing real estate. REITs act as a bridge between the worlds of housing and urban development on one hand, and institutional investors and financial markets on the other. They are typically categorized into commercial REITs (C-REITs) and residential REITs (R-REITs), with the latter focusing on housing assets such as apartments and single-family homes.

An exchange-traded fund (ETF) is a type of investment fund that is also an exchange-traded product, i.e., it is traded on stock exchanges. ETFs own financial assets such as stocks, bonds, currencies, debts, futures contracts, and/or commodities such as gold bars. Many ETFs provide some level of diversification compared to owning an individual stock.

An investment trust is a form of investment fund found mostly in the United Kingdom and Japan. Investment trusts are constituted as public limited companies and are therefore closed ended since the fund managers cannot redeem or create shares.

An income trust is an investment that may hold equities, debt instruments, royalty interests or real properties. It is especially useful for financial requirements of institutional investors such as pension funds, and for investors such as retired individuals seeking yield. The main attraction of income trusts, in addition to certain tax preferences for some investors, is their stated goal of paying out consistent cash flows for investors, which is especially attractive when cash yields on bonds are low. Many investors are attracted by the fact that income trusts are not allowed to make forays into unrelated businesses; if a trust is in the oil and gas business, it cannot buy casinos or motion picture studios.

In finance, an asset class is a group of marketable financial assets that have similar financial characteristics and behave similarly in the marketplace. We can often break these instruments into those having to do with real assets and those having to do with financial assets. Often, assets within the same asset class are subject to the same laws and regulations; however, this is not always true. For instance, futures on an asset are often considered part of the same asset class as the underlying instrument but are subject to different regulations than the underlying instrument.

In the United States, a master limited partnership (MLP) or publicly traded partnership (PTP) is a publicly traded entity taxed as a partnership. It combines the tax benefits of a partnership with the liquidity of publicly traded securities.

State Street Global Advisors (SSGA) is the investment management division of State Street Corporation founded in 1978 and the world's fourth largest asset manager, with nearly $4.14 trillion (USD) in assets under management as of December 31, 2021.

Gold exchange-traded products are exchange-traded funds (ETFs), closed-end funds (CEFs) and exchange-traded notes (ETNs) that are used to own gold as an investment. Gold exchange-traded products are traded on the major stock exchanges including the SIX Swiss Exchange, the Bombay Stock Exchange, the London Stock Exchange, the Paris Bourse, and the New York Stock Exchange. Each gold ETF, ETN, and CEF has a different structure outlined in its prospectus. Some such instruments do not necessarily hold physical gold. For example, gold ETNs generally track the price of gold using derivatives.

<span class="mw-page-title-main">Susquehanna International Group</span> Trading firm

Susquehanna International Group, LLP (SIG) is a privately held, global trading and technology firm. SIG comprises a number of affiliated entities specializing in trading and proprietary investments in equities, fixed income, energy, commodity, index and derivative products, private equity and venture capital, research, customer trading and institutional sales.

SPDR funds are a family of exchange-traded funds (ETFs) traded in the United States, Europe, Mexico and Asia-Pacific and managed by State Street Global Advisors (SSGA). Informally, they are also known as Spyders or Spiders. SPDR is a trademark of Standard and Poor's Financial Services LLC, a subsidiary of S&P Global. The name is an acronym for the first member of the family, the Standard & Poor's Depositary Receipts, now the SPDR S&P 500 Trust ETF, which is designed to track the S&P 500 stock market index.

Private equity real estate is a term used in investment finance to refer to a specific subset of the real estate investment asset class. Private equity real estate refers to one of the four quadrants of the real estate capital markets, which include private equity, private debt, public equity and public debt.

A Business Development Company ("BDC") is a form of unregistered closed-end investment company in the United States that invests in small and mid-sized businesses. This form of company was created by the US Congress in 1980 in the amendments to the Investment Company Act of 1940. Publicly filing firms may elect regulation as BDCs if they meet certain requirements of the Investment Company Act.

SteelPath was an American investment advisory firm based in Dallas, Texas that specialized exclusively in master limited partnerships ("MLPs"). The company was registered with the U.S. Securities and Exchange Commission as an investment advisor. In 2010, the company received press attention by becoming the first investment advisor to offer open-ended MLP mutual funds. In July 2012, OppenheimerFunds, now Invesco, acquired SteelPath for its MLP business.

In finance, the iPath refer to a family of exchange-traded notes (ETN) issued by Barclays. iPath ETNs are senior, unsecured debt securities of Barclays Bank PLC, covering the following asset classes: Commodities, Equity smart beta, MLPs, Sustainable investing, and Volatility.

<span class="mw-page-title-main">Investment fund</span> Way of investing money alongside other investors

An investment fund is a way of investing money alongside other investors in order to benefit from the inherent advantages of working as part of a group such as reducing the risks of the investment by a significant percentage. These advantages include an ability to:

<span class="mw-page-title-main">Traditional investments</span> Investment in well-known assets and shares

In finance, the notion of traditional investments refers to putting money into well-known assets with the expectation of capital appreciation, dividends, and interest earnings. Traditional investments are to be contrasted with alternative investments.

The SPDR S&P 500 ETF trust is an exchange-traded fund which trades on the NYSE Arca under the symbol SPY. SPDR is an acronym for the Standard & Poor's Depositary Receipts, the former name of the ETF. It is designed to track the S&P 500 stock market index. This fund is the largest and oldest ETF in the USA. SPDR is a trademark of Standard and Poor's Financial Services LLC, a subsidiary of S&P Global. The ETF's CUSIP is 78462F103 and its ISIN is US78462F1030. The trustee of the SPDR S&P 500 ETF Trust is State Street Bank and Trust Company. The fund has a net expense ratio of 0.0945%.

A yield co or yieldco is a company that is formed to own operating assets that produce a predictable cash flow, primarily through long term contracts. Separating volatile activities from stable activities of operating assets can lower the cost of capital. Yield cos are expected to pay a major portion of their earnings in dividends, which may be a valuable source of funding for parent companies which own a sizeable stake.

Gabriel Arce Hammond is an American financial executive, and serial entrepreneur. He is currently the founder and CEO of Emles Advisors LLC, an asset management firm.

References

  1. ↑ Some investment professionals have argued that intellectual property (such as royalties and patents) and insurance (life and annuities) should be included as real assets.
  2. ↑ For example, in the United States, REITs are treated as pass-through vehicles and not taxed at corporate level. In the case of exploration & development for oil and gas, there is accelerated depreciation.
  3. ↑ "Real estate investment trust", Wikipedia, 2019-09-24, retrieved 2019-10-08
  4. ↑ Cussen, Mark P. "Oil: A big investment with big tax breaks". Investopedia. Retrieved 2019-10-08.
  5. ↑ "REIT Industry Timeline".
  6. ↑ "MLP Asset Class Overview".
  7. ↑ "Renewable Energy Market Cap 2009-2019".
  8. ↑ "Virtus Real Asset Income ETF".
  9. ↑ "RLY: SPDR SSGA Multi-Asset Real Return ETF, Asset Allocation | SSGA SPDRS". us.spdrs.com. Retrieved 2019-10-08.
  10. ↑ https://www.indxx.com/assets/media/press/Real_Asset_ETF_Bake_Off.pdf) [ bare URL ]
This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.