Waverton is due to launch a real assets fund by the end of the month for Luke Hyde-Smith, James Mee, and William Dinning following in the footsteps of fellow investment managers like Architas and Sanlam.
The Ireland-domiciled Ucits fund will seek to generate CPI+4% return over the medium to long term with a lower volatility than equity markets. Its projected yield is 3.5%.
Dinning (pictured), head of investment strategy and communications, said real assets are often underpinned by tangible assets and inflation-linked cashflow streams. Returns will come from capital growth and income, he said.
Expected volatility on the fund is 10-12%.
The fund is being touted as an alternative to gilts, which, after a decade of strong returns, are set to lose investors money over the next year, according to documentation linked to the launch seen by Portfolio Adviser.
Real assets invested in range from music royalties to student accommodation to precious metals with the investment universe focused on five broad sectors: property, infrastructure, asset finance, commodities and specialist lending.
Slim pickings with real asset funds
Willis Owen head of investing Adrian Lowcock said Waverton has made a smart move given there aren’t too many other players in the space.
The £236.8m Architas Diversified Real Assets fund launched in September 2014 while Sanlam launched its Real Asset fund for Mike Pinggera in September.
The Architas fund has returned 11.1% over three years with an annual management charge of 0.55% and an ongoing charges figure of 1.05%. Property is one of its largest allocations with 21.97% followed by Global Corporate Fixed Interest, which represents 11.85% of the portfolio.
Waverton told Portfolio Adviser its OCF would be revealed at launch.
Attractive income alternative to bonds
Rising inflation makes the asset class look more attractive than bonds, Lowcock said.
“Because these assets are fairly niche the key to success is the need for specialist research and analytical skills,” Lowcock said.
Generally, real assets are not closely correlated to equities or bonds, he said. “Each subsector within the asset class has different correlations with shares and bonds and with other real assets so it is possible to build a diversified portfolio of these assets and reduce the risk and correlation.
“Many of the underlying investments are linked to government contracts and therefore offer potentially low risk and more secure income. The sector is huge and very diverse so the volatility and risk of a real assets fund is likely to change from one fund to the next.”
