Take advantage of real asset price gaps

These days, the real asset space is strong, says Craig Noble, CEO of Brookfield Investment Management and portfolio manager for the firm’s global infrastructure securities strategies.

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“The overall macro environment is pretty good [for such assets]; we’ve got low growth and interest rates, which I expect will stay very low for a long time,” adds Noble, whose firm manages the Renaissance Real Assets Private Pool.

“We also have no real concerns about inflation,” he says. “Of course, this could change over time, but I do expect these tailwinds will stay in place for several years.”

Noble’s portfolio is relatively balanced. But within the real asset securities space, “the market has become a lot more bifurcated over the last few years, compared with what we’ve previously experienced. Things look somewhat normal, on average, but there are large pockets that look either very inexpensive or very rich.”

Read: 3 ways to tap into real assets

The division between cheap and expensive real asset securities is a result of current investment trends, including the continually strong U.S. dollar and weak commodity prices, he explains. “Value investing has been dramatically out of favour, while momentum factors have ruled the day. Interest rates have defied most predictions. ETF and programmed investing has really [driven] stock prices.”

Looking at inexpensive real asset securities, Noble identifies opportunities in Hong Kong. “Real estate stocks look pretty interesting right now, [with] large discounts to fair value.”

Further, while the impact of the Brexit vote must be considered, “some of the European airport and toll road companies also look interesting, [along with] some select emerging market transportation companies— despite some of the local economic challenges.”

Read: Buy boring stocks post-Brexit

Noble finds some energy infrastructure companies are promising as well. “Many of them simply [became] too cheap several months ago and we used that opportunity to increase our holdings.”

Read: Institutional investors value real assets

Conversely, real asset securities that are too expensive are those affected by interest-rate risk. “U.S. utilities, for example, are trading well above all-time highs, as investors have been buying anything with a yield. Many of these companies [are] well run and have good assets, [but their] valuations have simply gotten too expensive.

“If interest rates go dramatically lower, or even negative in the U.S., then bond proxies [like utilities and real estate] will run even further. My best-case scenario is interest rates will stay low for the long time — they have some room to move higher — and the real asset space is going to continue to perform very well.”

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Noble is focusing on the publicly traded space, “where we’re looking at not just fair value and fundamental value, but what’s implied in the stock prices today.”

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