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Real asset focus. Real potential.

Real assets, like infrastructure and real estate, provide unique portfolio diversification opportunities, regular and growing cash-flow streams, capital appreciation and inflation protection.

Real assets attributes

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Category:

Real Estate

Definition
Real estate assets, both commercial and residential, provide the foundation for economic activity in global economies.

Subsectors
  • Office
  • Retail
  • Multifamily
  • Industrial
  • Self-Storage
  • Hospitality
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Category:

Infrastructure

Definition
Infrastructure assets tend to be long-lived and capital intensive and provide essential services for the efficient functioning of global economies.
Subsectors
  • Transportation
  • Communications
  • Renewable
  • Power
  • Utilities
  • Energy
  • Consumer discretionary
  • Financials
  • Information technology
  • Real estate
  • Telecommunications sectors

Benefits of Real Assets

Predictable and Steady Income

Real assets tend to have predictable and steady cash-flow streams supported by regulated or contractual revenues and attractive operating margins

Real Estate

The contractual nature of the revenue streams and the requirement to pay out 90% of pretax income to unitholders means REITs have historically generated consistent income for investors.

Infrastructure 

Many infrastructure assets operate as government-regulated monopolies and, as a result, enjoy high barriers to entry. These monopolies last for decades and produce consistent cash flow and dividends that are positively levered to economic growth.

Income and Capital Appreciation of Listed Equity U.S REITs, 25-year Period
Dividend Yield Comparison
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Source: 25-year period is represented by 1988Q4-2013Q3. Income and Capital Appreciation from Real Estate Investing: The Participation Trophy and the Performance Record, NAREIT Market Commentary, 29 August 2017.

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Source: Fiera Capital, Bloomberg, dividend yield as of December 31, 2017. Global Infrastructure, Global Bonds, Global Equities and Emerging Market Equities figures are represented by the following respective indices: S&P Global Infrastructure Index, DofA Merrill Lynch Global Government Bond II Ex Canada Index, MSCI World Index and MSCI Emerging Markets Index. 

Real Estate

The contractual nature of the revenue streams and the requirement to pay out 90% of pretax income to unitholders means REITs have historically generated consistent income for investors.

Income and Capital Appreciation of Listed Equity U.S REITs, 25-year Period
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Source: 25-year period is represented by 1988Q4-2013Q3. Income and Capital Appreciation from Real Estate Investing: The Participation Trophy and the Performance Record, NAREIT Market Commentary, 29 August 2017.

Infrastructure 

Many infrastructure assets operate as government-regulated monopolies and, as a result, enjoy high barriers to entry. These monopolies last for decades and produce consistent cash flow and dividends that are positively levered to economic growth.

Dividend Yield Comparison
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Source: Fiera Capital, Bloomberg, dividend yield as of December 31, 2017. Global Infrastructure, Global Bonds, Global Equities and Emerging Market Equities figures are represented by the following respective indices: S&P Global Infrastructure Index, DofA Merrill Lynch Global Government Bond II Ex Canada Index, MSCI World Index and MSCI Emerging Markets Index. 
Portfolio Diversification

Retail investors’ allocations to real assets have historically lagged that of large institutions and pension plans, despite the historically low correlations and resulting diversification benefits.

Real Estate

Historically, real estate securities have shown relatively low correlations to stocks and bonds. This means that adding real estate securities to a portfolio should enhance diversification and result in the portfolio generating higher returns for the same amount of risk.

Infrastructure 

Historically, the performance of infrastructure securities has exhibited low correlation with other asset classes. This means that adding infrastructure securities to a portfolio should enhance diversification and result in the portfolio generating higher returns for the same amount of risk.

Real estate correlations July 2000 – September 2015
Infrastructure correlations July 2000 – September 2015
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Source: Infrastructure Investing: A Distinct Asset Class, InstarAGF, October 8, 2015

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Source: Infrastructure Investing: A Distinct Asset Class, InstarAGF, October 8, 2015

ꝉ Correlation measures the extent to which two items move in the same direction. A correlation value of 1 means two items move closely in the same direction, while 0 means they do not move closely at all in either direction, and -1 means the items move in opposite directions.

Real Estate

Historically, real estate securities have shown relatively low correlations to stocks and bonds*. This means that adding real estate securities to a portfolio should enhance diversification and result in the portfolio generating higher returns for the same amount of risk.

Real estate correlations July 2000 – September 2015
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Source: Infrastructure Investing: A Distinct Asset Class, InstarAGF, October 8, 2015

Infrastructure 

Historically, the performance of infrastructure securities has exhibited low correlation with other asset classes*. This means that adding infrastructure securities to a portfolio should enhance diversification and result in the portfolio generating higher returns for the same amount of risk.


Infrastructure correlations July 2000 – September 2015
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Source: Infrastructure Investing: A Distinct Asset Class, InstarAGF, October 8, 2015

*Correlation measures the extent to which two items move in the same direction. A correlation value of 1 means two items move closely in the same direction, while 0 means they do not move closely at all in either direction, and -1 means the items move in opposite directions.

Inflation protection

History shows that real assets have outperformed stocks and bonds in periods of unexpected inflation. We believe this is because the cash flows of the underlying assets are positively-correlated to inflation.

Real Estate

Many REITs have annual rent increases that are tied to inflation and/or revenues that are sensitive to economic activity. As a result, rising inflation leads to cash flow growth and asset appreciation in these REITs*.

Infrastructure 

Revenues for many infrastructure assets are tied directly to inflation, providing a natural hedge and real long term returns. For other infrastructure assets, such as water and electricity utilities, the necessity of their services generates strong revenue and cash flow growth over the long term as consumers absorb price increases*.

Average U.S. REIT Dividend Growth vs. Average CPI 2006 – 2017
Sensitivity to Unexpected Changes in Inflation 1991-2017
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Source: Bloomberg 

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As at December 31, 2017. Source: Bloomberg and Cohen & Steers.

Data quoted represents past performance, which is no guarantee of future results. There is no guarantee that any historical trend illustrated herein will be repeated in the future and there is no way to predict precisely when such a trendwill begin. Stocks represented by the S&P 500 Index. Bonds represented by the BofA Merrill Lynch U.S. 7- 10 Year Treasury Index. Infrastructure represented by a 50/50 Blend of the Datastream World Piplelines and Datastream World Gas, Water & Multi-Utilities through July 2008 and the Dow Jones Brookfield Global Infrastructure Index thereafter. Inflation sensitivity based on a linear regression analysis of 1-year real returns and the difference between the realized inflation rate (y/y change in the Consumer Price Index) and the lagged 1-year- ahead median inflation estimate from the University of Michigan survey of consumers.

Real Estate

Many REITs have annual rent increases that are tied to inflation and/or revenues that are sensitive to economic activity. As a result, rising inflation leads to cash flow growth and asset appreciation in these REITs*.

Average U.S. REIT Dividend Growth vs. Average CPI 2006 – 2017
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Source: Bloomberg 

Infrastructure 

Revenues for many infrastructure assets are tied directly to inflation, providing a natural hedge and real long term returns. For other infrastructure assets, such as water and electricity utilities, the necessity of their services generates strong revenue and cash flow growth over the long term as consumers absorb price increases*.


Sensitivity to Unexpected Changes in Inflation 1991-2017
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As at December 31, 2017. Source: Bloomberg and Cohen & Steers.

Data quoted represents past performance, which is no guarantee of future results. There is no guarantee that any historical trend illustrated herein will be repeated in the future and there is no way to predict precisely when such a trendwill begin. Stocks represented by the S&P 500 Index. Bonds represented by the BofA Merrill Lynch U.S. 7- 10 Year Treasury Index. Infrastructure represented by a 50/50 Blend of the Datastream World Piplelines and Datastream World Gas, Water & Multi-Utilities through July 2008 and the Dow Jones Brookfield Global Infrastructure Index thereafter. Inflation sensitivity based on a linear regression analysis of 1-year real returns and the difference between the realized inflation rate (y/y change in the Consumer Price Index) and the lagged 1-year- ahead median inflation estimate from the University of Michigan survey of consumers.

Enhanced Risk-Adjusted Return Potential

Real assets securities possess unique risk-return profiles and we believe the addition of these securities to a portfolio should yield higher total returns for the risk incurred.

Real Estate

Over the last 25+ years, REITs have outperformed other major asset classes*. REITs have generally provided strong total returns comprised of tax efficient regular and growing distributions, and long-term capital appreciation driven by Net Operating Income growth.

Infrastructure 

Over the last decade, global infrastructure securities have delivered higher total returns than global equities and global bonds. The strong operational leverage in most infrastructure firms’ business models, combined with high barriers to entry produce sustainable, long-term returns in the form of attractive dividend income and capital appreciation*.

REITs outperform other major asset classes
10-Year Income Returns and Capital Appreciation: Global Listed Infrastructure vs. Equities & Bonds
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Source: Bloomberg Financial L.P. and Starlight Capital. Data from May 29, 1992 to May 31, 2018. REITs, Stocks, Bonds, and Commodities are represented by the Dow Jones U.S. Select REIT Index, the S&P 500®, Bloomberg Barclays US Corporate Total Return Value Unhedged USD Index, and the S&P GSCI, respectively. Past performance is no guarantee of future results. Chart is provided for illustrative purposes and reflects hypothetical historical performance.
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Source: Bloomberg as of March 31,2016. Global Infrastructure represented by the Dow Jones Brookfeild Global Infrastructure Index: Global Bonds represented by the Barclays Aggregate Global Corporate Bond Index; Global Equities represented by the M5CI World Index.

Real Estate

Over the last 25+ years, REITs have outperformed other major asset classes*.

REITs outperform other major asset classes
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Source: Bloomberg Financial L.P. and Starlight Capital. Data from May 29, 1992 to May 31, 2018. REITs, Stocks, Bonds, and Commodities are represented by the Dow Jones U.S. Select REIT Index, the S&P 500®, Bloomberg Barclays US Corporate Total Return Value Unhedged USD Index, and the S&P GSCI, respectively. Past performance is no guarantee of future results. Chart is provided for illustrative purposes and reflects hypothetical historical performance.

Infrastructure 

Over the last decade, global infrastructure securities have delivered higher total returns than global equities and global bonds.  The strong operational leverage in most infrastructure firm business models, combined with high barriers to entry produce sustainable, long term returns in the form of attractive dividend income and capital appreciation*.

10-Year Income Returns and Capital Appreciation: Global Listed Infrastructure vs. Equities & Bonds
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Source: Bloomberg as of March 31,2016. Global Infrastructure represented by the Dow Jones Brookfeild Global Infrastructure Index: Global Bonds represented by the Barclays Aggregate Global Corporate Bond Index; Global Equities represented by the M5CI World Index.

Pension funds increase real asset investments

Pension funds have demonstrated their belief in listed and direct real estate and infrastructure assets by increasing their portfolio allocations. Between 2008 to 2017, the top 100 pension plans in Canada, steadily increased their total combined assets under management (AUM) to real assets2: 

  • real estate from approximately $82 billion or 10.04 per cent to nearly $246 billion or 11.62 per cent.
  • infrastructure from approximately $29 billion or 3.59 per cent to over $150 billion or 7.11 per cent.

2  Source: Data from December 31, 2008 to December 31, 2017. Pension Investment Association of Canada

Access global real assets growth potential with Starlight Capital

Starlight Capital is an independent Canadian asset management firm. We are investment led and client-focused and we believe investing is about finding great businesses that will do well over long periods of time. When we find these businesses, we conduct our own independent analysis and take meaningful positions when the risk/reward outlook is favourable. Our uniqueness is demonstrated through:

1

Differentiated investment solutions

Concentrated global portfolios of high-quality real estate and infrastructure businesses offered through mutual funds, exchange-traded funds and structured products.
2

Disciplined investment approach

We strive to deliver superior, risk-adjusted, long-term returns for investors through our proprietary investment strategy Focused Business Investing. We build concentrated portfolios of high-quality businesses when they offer us sufficient return for the risk incurred.
3

Deep expertise

An investment team with more than 20 years of experience managing over $2 billion of global real estate and infrastructure securities. Dennis Mitchell, CEO & CIO of Starlight Capital has led investment teams of more than 30 people and exercised oversight of more than $18B in AUM.
Starlight Global 
Real Estate Fund

The Starlight Global Real Estate Fund is an opportunity to invest in investment grade commercial real-estate in world-class cities.

Starlight Global Infrastructure Fund

The Starlight Global Infrastructure Fund is an opportunity to invest in large assets that provide essential services in cities throughout the world.

The Case for Global Infrastructure

Speak to your advisor to learn more.

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Please read the prospectus before investing.

The content of this document (including facts, views, opinions, recommendations, descriptions of or references to, products or securities) is not to be used or construed as investment advice, as an offer to sell or the solicitation of an offer to buy, or an endorsement, recommendation or sponsorship of any entity or security cited. Although we endeavour to ensure its accuracy and completeness, we assume no responsibility for any reliance upon it.

Starlight Investments, Starlight Capital and all other related Starlight logos are trademarks of Starlight Group Property Holdings Inc.

© Copyright 2018 Starlight Investments Capital LP. All Rights Reserved.

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