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Alternative assets on the minds of investors again
Recent performance of traditional assets such as equities and bonds has been disappointing for many investors, and with this coinciding with aggressive interest rate hikes, economic upheaval from the Russian-Ukraine War and general rise in cost of living – investors may be forgiven for thinking there is ‘nowhere to hide’.
Some less conventional asset classes, such as real assets, however, have continued to perform well during recent economic turmoil. Recent events - as well as the ongoing transition to renewables - have triggered structural shifts in economic activity much to the benefit of these assets.
Real assets benefit from the recent economic turmoil
JPMorgan Global Core Real Assets (JARA) is well-positioned to take advantage of opportunities in structural shifts in economic activity, as well as capitalising on the transition to renewable energy. While 50% of its portfolio is invested towards global real estate assets, the other 50% is in other real assets – predominantly infrastructure and transportation, which has greatly benefited from the recent economic turmoil.
One example beneficiary of the recent economic storms is the shipping industry. Global lockdowns, protracted delays to the delivery of components, parts and finished goods, and disrupted export channels, increased demand for container ships to overcome the supply bottlenecks.
This demand was further fuelled by the Russia-Ukraine War. Changes to previously well-established trade patterns, and Ukraine being unable to meet export demands for grain, has meant supplies are being transported from more distant producers such as Brazil and India in order to meet demand. And with recent changes in COVID strategy unlocking China, the outlook for the shipping industry is looking even more hopeful. Such strong demands from a myriad of events have ensured shipping rates have increased markedly, and demand is expected to continue, as such owners of these assets are seeing enhanced investment returns.
Aviation and energy go through a transition
It is worth noting that not all industries leveraging core real assets faired quite as well during the last few years. The aviation industry suffered significant headwinds owing to widespread travel bans and global lockdowns. During this period approximately 90-92% of global aircraft were grounded. The airline industry is, however, finally beginning to take-off again, reflecting appetites for leisure travel following prolonged lockdowns and travel restrictions – with domestic and regional travel beginning to increase above that of pre-2019.
Recent geo-political events have also altered the approach to energy commodity supplies and how these are transported globally. With the current Western European gas source taps being turned off, demand has been generated for alternatives such as Liquified Natural Gas (LGN). As a consequence, this has fuelled greater demand for the transport carriers in order to deliver supplies from Norway, Algeria, Nigeria, Qatar and the US. LGN itself has also been designated a ‘transition fuel’ to enable countries to wean themselves off more carbon-intensive alternatives such as coal. This gradual transition to ‘net-zero’ shines an additional positive for other sustainable-energy related real assets such as offshore windfarms, utility scale battery storage and associated infrastructure.
JARA’s performance in the volatile markets
JARA’s position as an investor in real assets in high demand means that while the events of recent years have increased market volatility and dragged down the returns on conventional assets, the trust’s performance has been good in absolute and relative terms.
JARA focuses on low risk, ‘core’ real assets that offer highly predictable, reliable, long term cash flows that can flow through to JARA’s shareholders in the form of regular, competitive dividends. Most of the Company’s assets are unlisted, and thus not usually accessible to retail investors.
In the twelve months to end November 2022, the Company returned 12.6% on a net asset value (NAV) basis in GBP terms and 4.6% on a local currency basis, and it has returned 4.9% on an NAV basis (in GBP) and 4.8% (in local currency terms) since inception in September 2019. Dividend payments in respect of the financial year ended 28 February 2023 totalled 4.05p per share (2022:22 4.0p), representing a current dividend yield of 4.9%.
JARA’s performance track record illustrates the benefits of diversification away from traditional investments, into real assets, which are often uncorrelated to developments in financial markets - And now may be a particularly good time for investors to add JARA to their portfolios.
In common with most investment trusts, JARA’s share price has been under some pressure in recent months as investors sought the safety of cash in uncertain times. Its share price is currently trading at a discount to net asset value of around 8%, providing investors with the rare chance to gain exposure to JARA’s diverse and profitable alternative investments at especially attractive levels.
Risk profile
- Before investing, please refer to the Prospectus – particularly the Risk Factors, PRIIPs Key Information Document (KID), and all relevant documentation.
- The target total return is not indicative of the future performance and does not constitute a profit forecast. The target returns are for illustrative purposes only and are subject to significant limitations. An investor should not expect to achieve actual returns similar to the target returns shown above. Because of the inherent limitations of the target returns, potential investors should not rely on them when making a decision on whether or not to invest in the strategy.
- The targeted dividend should not be seen as JARA’s expected or actual dividend yield. Dividend payment is as declared by the Board according to Dividend Policy, subject to regulatory compliance.
- Diversification does not guarantee investment returns and does not eliminate the risk of loss.
- Your capital may be at risk.
Past performance is not a reliable indicator of current and future results. The performance of the company's portfolio, or NAV performance, is not the same as share price performance and shareholders may not realise returns which are the same as NAV performance.
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