In­vest­ing in real as­sets in­volves shrewd choices as well as good tim­ing

The National - News - - BUSINESS MONEY - PETER COOPER Peter Cooper has been writ­ing about Gulf fi­nance for two decades

From time to time in­vestors should all watch the launch of a SpaceX rocket and wait for its booster rock­ets to land safely back on Earth.

This is an al­most mirac­u­lous com­bi­na­tion of cut­ting-edge tech­nol­ogy and the law of grav­ity. Seem­ingly the im­pos­si­ble has be­come pos­si­ble. You are also look­ing at the big­ger pic­ture: planet Earth, big money and economic re­turns.

For learn­ing how to fly into space on a bud­get is likely to re­sult in the cre­ation of a mul­ti­tril­lion-dol­lar space sec­tor in the US stock mar­kets. Vir­gin Galac­tic – Richard Bran­son’s space craft tourism ven­ture backed by Abu Dhabi’s Mubadala – be­came the first listed stock in this space last month. When Mr Bran­son launched his ven­ture in Dubai more than a decade ago he asked the as­sem­bled jour­nal­ists: “Who wouldn’t want to go into space?” Only my hand went up.

How­ever, back on Earth in­vestors are fac­ing a more im­me­di­ate prob­lem. The ma­jor­ity have their wealth tied up in fi­nan­cial as­sets – that is to say stocks. bonds and cash.

While in the short run cash is king in a re­ces­sion, in the longer term it al­ways loses to in­fla­tion, de­val­u­a­tion or both, be­cause cen­tral banks grad­u­ally de­value money to wipe na­tional debts. US 10-year Trea­sury bonds yield just 1.95 per cent and bonds have a sim­i­lar de­val­u­a­tion risk to cash. Share div­i­dends are bench­marked against this low yield­ing 10-year Trea­sury bond. The S&P 500 in­dex of top US stocks has a pal­try av­er­age div­i­dend of 1.8 per cent.

Mean­while, the cycli­cally ad­justed price-to-earnings ra­tio as cre­ated by No­bel Prize-winning econ­o­mist Rober Shiller in­di­cates that US stocks are at their most over­val­ued in history, apart from before the dot-com crash in 2000 and Great Crash of 1929. Then con­sider that if the stock mar­ket were to fall heav­ily in value the US Fed­eral

Re­serve would slash in­ter­est rates, and that would bring bond prices crash­ing down.

Per­haps then it is no won­der that global as­set al­lo­ca­tion has shifted away from fi­nan­cial as­sets and into real as­sets. Ex­po­sure has in­creased from 5 to 20 per cent since 2000.

Real as­sets are di­verse in­come-pro­duc­ing fixed as­sets. By far the most im­por­tant is real es­tate – res­i­den­tial, of­fices, in­dus­trial, ho­tels and re­tail. Other sub-cat­e­gories in­clude: en­ergy pipe­lines, forestry agri­cul­tural land, air­ports, rail­ways, high­ways, wind­mills, so­lar farms, ship­ping and mines – and space travel.

Such real as­sets are sig­nif­i­cantly un­der­val­ued in com­par­i­son to fi­nan­cial as­sets, and of­fer a higher in­come stream. Real as­sets are al­ready a $50 tril­lion to $60tn mar­ket and an­a­lysts say that could dou­ble in 10 years.

The most dif­fi­cult thing is to de­cide what, when and where to buy. This is a di­verse ar­ray of in­vest­ment op­por­tu­ni­ties, and not ev­ery­thing that glit­ters will turn out to be gold. In ad­di­tion, it will al­most cer­tainly be bet­ter to buy th­ese as­sets after a stock mar­ket cor­rec­tion rather than before it. A fall­ing tide will sink all boats. So how can the av­er­age punter in­vest?

The cre­ation of more than 200 Real Es­tate In­vest­ment Trusts has made it easy to be a pas­sive in­vestor. Three real es­tate ex­change traded funds tipped by Forbes re­cently are: Na­tional Health In­vestors, Crown Cas­tle In­ter­na­tional and Duke Realty.

For wind­mills there are spe­cial­ity funds such as Brook­field Re­new­able Part­ners and Han­non Arm­strong. You can buy into en­ergy pipe­lines with listed ve­hi­cles such as En­ergy Trans­fer and Mag­el­lan Mid­stream Part­ners or buy shares in quoted air­ports and high­way op­er­a­tors.

Tim­ber and Farm­land Reits such as Farm­land Part­ners and W eye rh ae user of­fer ex­po­sure in this sec­tor; and the VanEck Vec­tors Gold Min­ers ETF is a pop­u­lar risk di­ver­si­fier.

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