“The fundamentals of our underlying companies may prove to be more resilient than the broader market during this recent global health crisis.”
Founded in 1932, Duff & Phelps has built its brand on quality, reliability, and specialization. When we speak of our strategies and the type of companies we invest in, we typically look for attributes such as; owners of commercial real estate, operators of core infrastructure, earnings predictability and sustainability, reliable and growing cash flows, and high quality assets with significant barriers to entry. Against that backdrop, and with the heightened concerns about the COVID-19 virus, it is worth noting that to date none of the top 10 holdings in either our Global Listed Infrastructure or Global Real Estate Securities strategies have cut their 2020 earnings estimates. Compare that with the S&P 500®, in which over the last few weeks about 20% of companies have already trimmed 2020 guidance and many wall street firms have preemptively revised down US and Global GDP Growth for 2020.* The fundamentals of our underlying companies may prove to be more resilient than the broader market during this recent global health crisis. Consider that global listed infrastructure and global real estate benchmarks have held up materially better than global equity markets over the last couple of weeks, as well as in Q4 2018 when markets last corrected. Investors almost never experience an “average” return, which is why we like to say that their “ride” over time is what matters.
For all the concerns about the COVID-19 virus we recommend staying the course with infrastructure and real estate investments over the short-term, as markets have shown remarkable resiliency over longer periods of time. However, with fears of a global pandemic driving volatility, investors may benefit from prudent rebalancing and diversification to get risk budgets back in line. The extended bull market has made many investors’ portfolios skewed toward large cap U.S. growth companies, perhaps causing some portfolios to fall out of their original allocations.
Real assets have historically provided diversification in the form of lower correlation to traditional stocks. They also have the potential to offer more stable and defensive cash flow, since they are secured by long-term leases and contractual agreements. This cash flow has translated into relatively high and growing dividend yields that may give investors some downside protection in markets like we have today. And if the current situation persists, earnings may be cut but the long lived and critical nature of real assets may help earnings rebound quicker than general equities in the recovery period. Real assets were made for these types of market conditions because of their unique characteristics. No one knows how long this current crisis will last, but good companies with visible and stable earnings should prove their mettle over the long term.
*Source: Bloomberg as of 2/28/20
This material has been prepared using sources of information generally believed to be reliable; however, its accuracy is not guaranteed. Opinions represented are subject to change and should not be considered investment advice or an offer of securities. Forward-looking statements are necessarily speculative in nature. It can be expected that some or all of the assumptions or beliefs underlying the forward-looking statements will not materialize or will vary significantly from actual results or outcomes. Statements concerning current conditions are not a reliable indicator of future results. Actual results for different companies, sectors and regions may vary.
There is no guarantee that a diversified portfolio will outperform a non-diversified portfolio, or that diversification among different asset classes will reduce risk. Asset allocation does not guarantee a profit or protect against loss in declining markets.