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Listed real assets in high demand: Bfinance

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Peter Hobbs, Managing Director, Private Markets, at bfinance, writes that the ‘Listed Real Asset’ (LRA) appellation has only recently gained recognition: a catch-all term signifying REITs, Listed Infrastructure and other tradeable securities with strong exposure to underlying ‘real assets.’

Hobbs says in his report Revisiting the Case for Listed Real Assets: 

“Just as the sector has been coined, it has endured two years of deeply troubled performance. It is never advisable to steer strategic decisions based on short- term results. That being said, investors will have found it hard to ignore the recent slump. Four years ago, LRA boasted some of the strongest long-term risk-adjusted returns of any asset class. Today, the picture is rather different. Will a troubled period dampen sentiment towards the sector? Or will investors see this, instead, as a time to ‘lean in’?”

He notes that REITS in particular, despite a significant end-of-year uptick rivalling that in equities, have experienced their worst drawdown in over a decade (-31 per cent at end-December 2023, vs. -25per cent in global equities). 

“Investors may be anticipating REITs to perform their characteristic post-slump rebound and eyeing the ongoing discount against underlying real estate valuations: publicly listed US equity REITs were trading at a median 10.7 per cent discount to their consensus S&P Capital IQ NAV per-share estimates at end-2023, up from a near-20 per cent discount in late August, indicating a convergence. 

“Listed infrastructure, meanwhile, has also struggled of late, though the lower volatility and modest resilience of the asset class during equity drawdowns have remained in evidence and long-term results are still healthy.”

Hobbs writes that the past decade has seen remarkable developments in the LRA sector: listed infrastructure strategies caught hold (as did debates regarding their validity); hybrid Listed Real Asset products appeared, bringing REITS and Listed Infrastructure together (with several more recent launches even including energy/commodity/natural resource exposure); funds blending private and public real assets in one vehicle have also become more prominent. 

“Indeed, investor demand for liquid or semi-liquid access to ‘real assets’ has arguably never been higher, whether this is expressed through LRA, open-end funds or other relevant approaches. Appetite has been supported by the growth of the Defined Contribution and Wealth sectors, for whom continual flexibility on inflows and outflows is often required.”

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