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Market and Fund Commentaries

Starlight Capital publishes whitepapers, market and fund commentaries to help advisors and investors understand our thinking on the current market, recent fund performance and anticipate future outlooks. 
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Focused Business Investing

Focused Business Investing attempts to build a concentrated portfolio of high-quality businesses that will generate superior risk-adjusted returns over the long term. The focus is on companies with strong, recurring free cash flow from irreplaceable assets, capitalized with low levels of debt and run by management teams that behave like true stewards of investor capital.  However, this must be done only when these companies are priced to deliver sufficient return for the risk incurred.

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The Case for Global Real Estate

Real estate firms generate long-term cash-flow streams with leverage to rising economic output. This is confirmed by the long-term outperformance of REITs over the last 25 years, compared to both global stocks and global bonds. The outperformance of REITs over this time period is often linked to declining interest rates, however it’s important to note that global equities outperformed global bonds during this time period. Global equities were also levered to falling interest rates and, certainly, to rising economic output. The outperformance of REITs during this time period is a function of their structure and the unique attributes of REITs.

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The Case for Global Infrastructure

Infrastructure assets provide essential services that allow global cities to function.  The almost inelastic demand for their services results in consistent revenue, margin and cash flow growth.  Global macro trends such as population growth, urbanization and digitization drive the continued utilization of these assets. Infrastructure businesses add to portfolio diversification because of their low correlation to other asset classes.  Infrastructure assets have historically outperformed equities and remain under-allocated to by most investors.

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Rising Interest Rates and Impact on REITs

Since 1975 there have been six periods where the U.S. 10-year bond yield has risen significantly. During four of those time periods, REITs generated positive returns and during three of those periods, REITs outperformed stocks. Rising long-bond yields are usually associated with increased economic output and inflation, both of which are likely to be positive for REITs. Increased economic growth should result in the demand for more real estate as employment rises. As occupancies rise rents should follow, resulting in increased REIT cash flows, distributions and valuations. 

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How REITs Generate Growth

At Starlight, we attempt to add value by concentrating our investments into high-quality REITs with multiple value creation levers at their disposal. REITs with more growth potential should outperform through the cycle but their value is especially important when economic activity accelerates, and inflation expectations and spot rates rise. Purchased when they offer us sufficient return for the risk incurred these investments should yield us strong risk-adjusted returns over the long term. 

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