- All diversifiers deliver positive contribution; gold is strongest performer
- core infrastructure, core property and cyclical real assets weigh
- Double-digit discounts offer an opportunity to top up exposure to social infrastructure, renewables and specialist REIT sectors
Over the month to 31 October 2023, the Diversified Real Assets Fund (the ‘Fund’) returned -2.7%, (Class A accumulation share class, net of fees).1
Diversifiers contributed positively to performance in October, but this was outweighed by the negative returns from core infrastructure, core property and cyclical real assets.
All the holdings within diversifiers were positives, including iShares Physical Gold, which was the strongest overall contributor, UK gilts, inflation-linked bonds, and National Grid and Transport for London infrastructure bonds.
Within core infrastructure, social and renewable assets were negatives, most significantly through JLEN Environmental Assets, GCP Infrastructure Investment and Cordiant Digital Infrastructure. Global infrastructure equity was a slight positive here through Pantheon Infrastructure.
Our core property holdings include speciality real estate investment trusts (REITs), all of which were negative contributors. Tritax EuroBox, Assura and LXI weighed the most here. REITs were significantly impacted by central banks’ aggressive rate hikes from 2022 onwards to combat rising inflation. However, REITs did perform positively in July, when they made the strongest contribution to the positive performance of the Fund.
All the sub-sectors within cyclical real assets were negative too, including global infrastructure equity, global property equity and property debt. Prologis and Cellnex detracted the most. Positive cyclical real asset highlights included American Tower, Digital Realty Trust and RWE AG.
Outlook
After a challenging backdrop for real assets over the last 12 months, we remain confident about its long-term return prospects and its role as a diversifier versus traditional equities and bonds.
This is due not least to the consistently strong fundamental performance of most of our holdings despite the volatility in share prices. This volatility for the most part reflects a higher interest rate environment that may be close to peaking, as evidenced by inflation levelling off or even falling. This makes us confident that most of the pain may be behind us in terms of interest rates.
The current double-digit discounts to net asset value on offer have presented us with an opportunity to maintain conviction or even top up our exposure to social infrastructure, renewables and specialist REIT sectors because we believe they present an attractive investment opportunity over the medium and long term.
Equally, investors should not disregard the increasing risks of a recession and the defensive, government-backed and contractual cashflows from real assets that have demonstrated outperformance in past recessions relative to other risk assets such as equities or high-risk credit.
This is even more pertinent as some parts of the equity universe are trading at historically expensive valuations and are pricing in very optimistic scenarios. For most clients, owning some defensive real assets alongside their traditional equities and bonds can provide a good source of diversification, especially in an economic and earnings slowdown scenario.
(1) Source: Financial Express, as at 31 October 2023
KEY RISKS
Past performance is not a guide to future performance. The value of an investment and the income generated from it can fall as well as rise and is not guaranteed. You may get back less than you originally invested.
The issue of units/shares in Liontrust Funds may be subject to an initial charge, which will have an impact on the realisable value of the investment, particularly in the short term. Investments should always be considered as long term.
Overseas investments may carry a higher currency risk. They are valued by reference to their local currency which may move up or down when compared to the currency of the Fund. Bonds are affected by changes in interest rates and their value and the income they generate can rise or fall as a result; The creditworthiness of a bond issuer may also affect that bond's value. Bonds that produce a higher level of income usually also carry greater risk as such bond issuers may have difficulty in paying their debts. The value of a bond would be significantly affected if the issuer either refused to pay or was unable to pay. This Fund may have a concentrated portfolio, i.e. hold a limited number of investments or have significant sector or factor exposures. If one of these investments or sectors / factors fall in value this can have a greater impact on the Fund's value than if it held a larger number of investments across a more diversified portfolio. The Fund may encounter liquidity constraints from time to time. The spread between the price you buy and sell shares will reflect the less liquid nature of the underlying holdings. Outside of normal conditions, the Fund may hold higher levels of cash which may be deposited with several credit counterparties (e.g. International banks). A credit risk arises should one or more of these counterparties be unable to return the deposited cash. Counterparty Risk: any derivative contract, including FX hedging, may be at risk if the counterparty fails.
DISCLAIMER
This is a marketing communication. Before making an investment, you should read the relevant Prospectus and the Key Investor Information Document (KIID), which provide full product details including investment charges and risks. These documents can be obtained, free of charge, from www.liontrust.co.uk or direct from Liontrust. Always research your own investments. If you are not a professional investor please consult a regulated financial adviser regarding the suitability of such an investment for you and your personal circumstances.
This should not be construed as advice for investment in any product or security mentioned, an offer to buy or sell units/shares of Funds mentioned, or a solicitation to purchase securities in any company or investment product. Examples of stocks are provided for general information only to demonstrate our investment philosophy. The investment being promoted is for units in a fund, not directly in the underlying assets. It contains information and analysis that is believed to be accurate at the time of publication, but is subject to change without notice.
