QUARTERLY UPDATE & OUTLOOK REAL ASSETS
We just published our latest quarterly update for our Real Assets Investment Strategy
About Real Assets: A diversified investment strategy that invests in liquid real assets classes such as equities, commodities, inflation-protected bonds, listed globally. The portfolio is allocated between different sectors (Water, Timber, Energy, Gold, Inflation…) that are representative of the underlying macroeconomic trends and benefit from fundamental strengths in demand while having few substitutes and constrained supply.
HIGHLIGHTS FROM THE REPORT AND THE OUTLOOK
We started the quarter with a relatively high cash level as potential impact from emerging and European economies slowdown on global growth increased pressure in the Real Asset universe. A possible stock market’s contagion from ongoing Argentina’s and Turkey’s currency crises and Italian political situation also led us to adopt a more cautious approach as multiples are demanding in the U.S. in particular.
The decline in lumber and in wood producers’ stock prices and the late rally in oil prices created significant opportunities and we deployed cash selectively. We continued to increase the cyclical component in our Timber strategy while diversifying our energy exposure to downstream and European related names. We increased the distribution yield in our energy infrastructure strategy while keeping broad exposure to water utilities stable. We continued to exit the most expensive positions in our water technology sleeve. We kept exposure stable to gold and broad commodities. At the beginning of August, we reduced the portfolio’s over-all equity exposure by an additional 5% as we bought another option. Cash stood at 3.9%.
The portfolio still has a clear bias to European and Canadian equities as the valuation metrics are currently less expensive than other regions, while offering similar or higher earnings growth potential.
We are using a very dynamic approach in energy equities where increasing U.S. oil and natural gas production, coupled with infrastructure, trade and geo-politics related factors are met by healthy levels of global demand.
Our exposure to energy infrastructure increases the overall portfolio’s implicit dividend yield while growth and impact of current oil and gas production in the U.S. are still not fully priced-in.
The recent weakness in wood producers and in water infrastructure is increasing the appeal of the sub-sectors.
The numbers and portfolio references mentioned above pertain to the Silk Sustainable Real Assets Fund