* Real estate, precious metals, energy offer portfolio
* Real assets used to be inaccessible to all but wealthy
* Assets need long-term view hand
By Andrea Hopkins
TORONTO, Oct 10 When Canada's big pension funds
started to diversify out of stocks and bonds, they turned to
real assets in a bid for better returns. But buying real estate,
infrastructure and commodities isn't just for big players
anymore, and Canadian asset managers are offering them to
After years of putting inflation worries on the back burner
because global growth is subdued and interest rates are at
historic lows, money managers are rolling out more products
aimed at protecting against inflation and spreading risk.
"I really believe everybody should have some access to real
assets. It primarily goes back to preservation of wealth and the
possibility to create wealth as well. It's got the inflation
protection that other types of assets may not give you," said
Steve Yuzpe, chief financial officer at private equity firm
Sprott Resource Corp.
Canadian pension funds now typically hold 17 percent to 25
percent of real assets buying pipelines, farmland, energy and
gold getting a return on investment that has long attracted
anyone wealthy enough to be able to afford such things.
When he managed the money of wealthy families, Som Seif saw
how real assets played a role in their portfolios. Now, the
Canadian exchange-traded-fund (ETF) pioneer and founder of
Purpose Investments wants to provide the same access to all
Canadians, but at a lower cost.
"A billionaire family is always thinking about protection of
wealth versus enhancing wealth. They want to grow their asset
and protect the downside," said Seif, who opened five, low-fee
funds including the Purpose Diversified Real Asset Fund
, available as an ETF, last month.
Seif said his(?) diversified fund which invests across five
main real asset categories - agriculture, base metals, precious
metals, energy and real estate - is better than picking a gold
ETF, a REIT, an energy ETF and the like, because Purpose's
active management regularly rebalances the fund according to
quantitative rules, not investor-driven emotion.
Seif also includes both physical assets like gold, silver,
oil, corn, soy and cash in the fund, as well as the companies
that produce such assets or manage them, like RioCan REIT
, Monsanto Co, and Teck Resources Ltd
"We are trying to think like the most intelligent pension
plans think, and bring it to the market," said Seif.
Toronto-based Russell Investments Canada also entered the
real asset space this year, opening the Russell Real Assets
Portfolio in May. The fund, available through advisers to
clients with at least C$25,000 in their account, invests in
global real estate, infrastructure, a commodity index and
"On the infrastructure and real estate side, with those
exposures we think you get a lot less volatility than core
equities. They are more defensive properties," said Greg Nott,
chief investment officer at Russell.
"We're talking about bridges and airports and toll roads -
the volatility around those businesses and their earnings and
revenues are a lot less," he said.
Don Coxe, a portfolio adviser to BMO Asset Management, said
the obvious benefit of a real asset is scarcity. The resource is
not renewable. And while commodity prices are going to cycle up
and down, the hunger for the underlying commodity from a country
like China is not going to go away.
Funds like the Coxe Commodity Strategy Fund and
the Coxe Global Agribusiness Income Fund also
diversify a portfolio away from inflation-sensitive equities and
bonds, he said.
"This is an asset class that will tend to give you better
performance when the rest of the equity markets aren't doing so
well because there is rising inflation," said Coxe.
While Sprott Asset Management has a swath of funds to get
investors into real assets, Yuzpe said buying shares of Sprott
Resource Corp can also do the trick, because the company invests
in private companies that are often accessible only to private
"Funds in general have trouble investing in private
companies...So this is a way for individual investors like you
and me to invest in (a) private equity class that is typically
only open to institutional investors," he said.
Yuzpe and the others agree on one thing: investing in real
assets requires a long time frame and an unemotional approach.
Commodity prices can swing wildly for good reason and for no
reason, and investors tend to get burned by buying high and
selling when everyone else does.
"I do think they need to keep a relatively long-term
perspective with real assets," said Russell's Nott.
"We've had a number of years with no inflation risk, and I
don't see much even for the next few years. But at some point
we're going to see stronger economic growth, the market will
price in some inflation concerns and that's when we'll see some
of the merits of (holding real assets)."