Real Assets Build Real Resilience
Real assets are highly integrated into our day-to-day lives, from the roads we drive on to the oil and gas that fuels our cars and homes. And, although they are typically considered non-traditional assets, there is a vast opportunity to invest in the real assets sector such as resources and infrastructure which could offer diversification, stability, and potential cash flows to portfolios.
Resources
One main category of real assets are resources and commodities. These assets include:
Global Real Assets Fund/Class1
A fund aiming to deliver long-term capital growth by investing in listed global securities in energy, materials, infrastructure, and precious metals sectors.
1 On April 18, 2019, the Fund’s investment objective was changed to offer increased flexibility to allocate the Fund’s capital to real assets beyond those companies operating in the precious metals and natural resources sectors. Performance prior to this date would have been different had the current objective been in effect.
Infrastructure is largely associated with assets such as roads, bridges, airports, and pipelines. However, opportunities to invest in global “infra” stocks go well beyond these traditional assets. The infrastructure category in the real assets sector includes:
AGF Systematic Global Infrastructure ETF (QIF)2
Employs a systematic, factor-driven investment strategy to invest in an expanded universe of global infrastructure equities, including renewable energy and digital infrastructure.
2 AGFiQ Global Infrastructure ETF was renamed AGF Systematic Global Infrastructure ETF on January 27, 2023. Effective January 27, 2023, AGF Investments LLC is a subadvisor to AGF Systematic Global Infrastructure ETF.
The Case for Real Assets
Real assets are a unique asset class that tends to perform differently from the traditional equity stocks and bonds we are familiar with. After recently participating in an investment environment filled with rapid inflation pressures and historic interest rate hiking cycles, investors can look to these assets to potentially add both stability in their portfolios and protection against weaker economic growth due to real assets performing differently than traditional investments. Here are some things to consider about real assets when evaluating portfolios.
1. Diversification
Adding real assets to a portfolio can diversify equity exposure and offer access to a commonly under-represented asset category.
We can look at the average cumulative returns during inflationary periods, where real estate, infrastructure, and energy all outperformed U.S. equities and U.S. bonds. Therefore, including these real asset sectors that have a low correlation to traditional stocks and bonds can help to diversify and manage volatility in portfolios.
Average Cumulative Returns During Inflationary Periods (CPI greater than 2.5%)
Navigating security selection within the real assets market can be challenging due to its alternative nature, but investors can consider AGF Global Real Assets Fund/Class or AGF Systematic Global Infrastructure ETF. The chart below demonstrates how these funds have both maintained higher allocations to real asset sectors that have tended to perform better than traditional U.S. equities and bonds during recent high inflationary periods. MSCI All Country World Index is being used to represent traditional global equities.
AGF Global Real Assets Fund and AGF Systematic Global Infrastructure ETF
Source: Morningstar Direct as of March 31, 2023. The charts display a breakdown by sector exposure which is a measure of the value of the underlying securities within the funds. One cannot invest directly in an index.
2. Inflation Protection
One of the most appealing considerations about the real assets category is its higher correlation to inflation. In fact, investors will find that real assets tended to outperform other asset classes in previous high inflation environments.
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Real estate and infrastructure often have inflationary mechanisms built into most contracts and revenue streams that have periodical inflation-linked escalators. This helps businesses to maintain the present value of future cash flows. Similarly, materials, energy, and precious metals have been widely used as a hedge against inflation. In the past, materials and energy stocks have tended to be pro-cyclical, meaning that their profitability is positively correlated with the overall health of the economy. Revenues of energy companies specifically are tied to energy prices and given that energy is a core input in the industrial production process and components of inflation indices, these equities naturally have performed strongly in periods of rising inflation. |
Although inflation may not currently be a new story for investors, the business cycle proves that it is only a matter of time until inflation returns and makes headlines. The chart below illustrates AGF Global Real Assets Fund’s performance over the last three years of high inflation where it has outperformed traditional equities and bonds on average.
|
Fund |
AGF Global Real Assets Series F |
MSCI ACWI Index |
|
Total Ret 1 Yr (Mo-End) CAD |
-3.94% |
8.38% |
|
Total Ret Annlzd 3 Yr (Mo-End) CAD |
10.24% |
9.46% |
|
Total Ret Annlzd 5 Yr (Mo-End) CAD |
4.42% |
7.78% |
|
Total Ret Annlzd 10 Yr (Mo-End) CAD |
2.55% |
10.82% |
Source: AGF Investments Inc. and Morningstar Direct as of April 30, 2023. In Canadian Dollars. MER as of June 2023. AGF may, in its discretion, temporarily waive some or all of the expenses of the Fund, which will result in a reduction in the MER. AGF may cease to offer any such waiver at any time without notice. Past performance is not indicative of future results. One cannot invest directly in an index.
3. Yield
Through improved diversification, strategic exposure to real assets can not only potentially improve investors’ risk-adjusted returns but also offer a source for greater potential yield. AGF Systematic Global Infrastructure ETF, for example, has offered higher yields over the long term and during high inflationary periods in comparison to U.S. equities and treasury bonds.
Trailing 12 Months Net Yield (%)
Source: Morningstar Direct as of April 30, 2023. Past performance is not indicative of future results. One cannot invest directly in an index.
AGF Solutions
Explore AGF’s real assets solutions to determine if they may be a fit in portfolios.
AGF Global Real Assets
AGF Global Real Assets Fund/Class seek to generate attractive, risk adjusted returns as a cushion against business cycle volatility. In addition to seeking to add value within each of the underlying asset classes through fundamental security selection, the team employs tactical weightings to each asset class and utilizes derivatives to manage risk with an aim to enhance income for the overall portfolio. The portfolio managers regularly perform this relative value assessment and incorporates views on a variety of fundamental, technical, quantitative, and economic factors.
Portfolio Managers
Stephen Bonnyman is Head of Equity Research and Portfolio Manager of AGF’s Global Real Asset portfolios. Working closely with the AGF research teams, Steve focuses on identifying companies with advantaged business models, solid balance sheets, favourable cost structures, attractive valuations or unrecognized growth. Steve is a member of the AGF Asset Allocation Committee (AAC), which is comprised of senior portfolio managers who are responsible for various regions and asset classes. The AAC meets regularly to discuss, analyze and assess the macro-economic environment and capital markets in order to determine optimal asset allocation recommendations.
He joined AGF in 2013 with more than 20 years of buy- and sell-side experience covering the global materials industry, including five years of institutional money management. Prior to joining AGF, Steve was Managing Director and Mining Analyst at a major financial institution, responsible for global company research coverage and equity market analysis. Prior to that, he was an analyst and portfolio manager at two leading asset management firms.
Steve has a B.Sc. in Geology from McMaster University and an MBA from Dalhousie University. He is a CFA® charterholder.
Portfolio Manager under AGF Investments Inc. and AGF Investment America Inc. CFA® and Chartered Financial Analyst® are registered trademarks owned by CFA Institute.
Jeff Kay joined AGF as part of the Highstreet* Investment Management team in 2011. He is the portfolio manager responsible for AGF’s option overlay and hedging strategies, and also serves as co-portfolio manager of AGF Global Real Assets Fund/Class.
Prior to this, Jeff was an associate portfolio manager, assisting with the day-to-day management of the option overlay strategies and was primarily responsible for quantitative research and strategy development within Highstreet’s structured products team. Before joining Highstreet, Jeff worked in credit and market risk management as well as quantitative analysis for a large Canadian financial institution.
Jeff has two decades of investment experience. He has a B.Sc. in Mechanical Engineering, a B.Sc. in Applied Mathematics, and M.Sc in Applied Mathematics from Western University with a focus in Quantitative Finance and option theory. Jeff continued his Master’s degree research as a Ph.D candidate in the Applied Mathematics department at Western, but left prior to competition to start his finance career.
*Highstreet is a wholly-owned subsidiary of AGF Investments Inc.
AGF Systematic Global Infrastructure ETF
AGF Systematic Global Infrastructure ETF employs a factor-driven investment strategy to invest in an expanded universe of global infrastructure, including renewable energy and digital infrastructure, while offering potentially higher yields as compared to traditional global equities and bonds.
The AGF Quantitative team employs a multi-factor investment process to evaluate global infrastructure equities. Their disciplined, transparent, and repeatable investment approach guided by factor and risk models, allows for intelligent and informed allocations to achieve investment objectives.
Portfolio Managers
Grant Wang serves as Head of Quantitative Research and Data Science, leading AGF’s quantitative research team. He is an integral member of AGF’s Quantitative Investment team, whose approach is grounded in the belief that investment outcomes can be improved by assessing and targeting the factors that drive market returns.
Grant began his career with AGF as part of the Highstreet* Investment Management team. Prior to joining AGF, Grant spent seven years as a lead quantitative researcher for one of Canada's largest pension funds. He has been involved with utilizing big data and developing predictive statistical models for the financial industry since 2001.
Grant has a B.A. and M.A. in Economics from Nankai University, and a Ph.D. in Economics from the University of Western Ontario. He is a CFA® charterholder.
*Highstreet Asset Management Inc. is a wholly-owned subsidiary of AGF Investments Inc.
Robert Yan is Vice-President, Head of Systematic Portfolio Management, responsible for assisting in the development of a scalable systematic approach to portfolio management, and enhancing and standardizing the tools used to manage the firm’s quantitative portfolios.
A CFA® charterholder with a Ph.D. in Computer Science from the University of Western Ontario, Robert leverages his investing and data science expertise as a key contributor to AGF’s Quantitative Investment team, whose approach is grounded in the belief that investment outcomes can be improved by assessing and targeting the factors that drive market returns.
He began his career with AGF as part of the Highstreet** Investment Management team and was an integral member of the research and portfolio management team. Robert was also instrumental in the development, enhancement and day-to-day management of Highstreet’s quantitative portfolio strategies. He previously worked in the banking industry, leveraging his unique skill set to design, develop, and implement analytical projects to support business decision making.
*Highstreet Asset Management Inc. is a wholly-owned subsidiary of AGF Investments Inc. CFA® and Chartered Financial Analyst® are registered trademarks owned by CFA Institute.
Lei Wan serves as Co-Portfolio Manager of AGF’s quantitatively managed Canadian-listed ETFs, contributing to the development and enhancement of their respective investment strategies, with a focus on the ETFs’ factor-based ESG capabilities.
Lei previously served as a Senior Analyst and Senior Research Analyst. Prior to joining AGF, he worked for a leading international provider of factor indices and multifactor risk models based in Toronto.
Lei earned a Bachelor of Mathematics and Finance in 2010 from the University of Alberta, and a Master of Quantitative Finance in 2012 from the University of Waterloo. He is also a CFA® charterholder.
CFA® and Chartered Financial Analyst® are registered trademarks owned by CFA Institute.
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On April 18, 2019, the Fund's benchmark changed from a blended index of 60% MSCI World Energy Index / 40% MSCI World Materials Index to a blended index of 25% S&P Global Infrastructure Index / 15% MSCI World Real Estate Index / 20% MSCI World Energy Index / 20% MSCI World Materials Index / 20% S&P/TSX Global Gold Index. Then on April 1, 2020, the benchmark changed to a blended index of 25% S&P Global Infrastructure Index / 20% MSCI World Real Estate Index / 20% MSCI World Materials Index / 15% MSCI World Energy Index / 10% S&P/TSX Global Gold Index / 10% ICE BofA US Inflation Linked Treasury Index. In both cases, the benchmark changes were applied from that date forward.
AGFiQ Global Infrastructure ETF was renamed AGF Systematic Global Infrastructure ETF on January 27, 2023. Effective January 27, 2023, AGF Investments LLC became a subadvisor to AGF Systematic Global Infrastructure ETF. The addition of the sub-advisor may have a material effect on the fund.
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Publication Date: June 14, 2023