Real assets – an introduction to an alternative solution

Mayank is a co-manager on a number of portfolios including the Architas Diversified Real Assets Fund, Architas Monthly High Income Find, Architas Strategic Bond Fund and Architas Diversified Global Income Fund and acts as deputy portfolio manager on the Multi-Asset Blended range. He is also the sector lead on UK fixed income, fixed income alternatives such as securitised credit, as well as macro/multi asset.

Our strategy provides access to parts of the market that advisers may not be aware of or perhaps don't have the experience of investing within.

  1. Why are real assets important for investors in today's market?

Real asset investments cover a broad group of sub-asset classes such as property, infrastructure, renewable energy, commodities, or asset leasing. In general, they tend to have a combination of the following three characteristics in common:

  • Provide access to investments that can protect against inflation better than traditional asset classes.
  • Offer attractive yields in a low interest rate environment.
  • Act as a source of portfolio diversification; a relevant feature when both bond and equity markets are arguably expensive.

We believe that investors can improve their risk/return profile over the long run by including real assets within their alternative allocation bucket.

  1. How would you describe the Architas Diversified Real Assets Fund's investment strategy and what makes this fund different?

The fund is an industry-rated* multi-manager solution for investors seeking alternative allocations. It is designed for retail investors looking to further diversify their portfolios away from traditional equities and bonds by combining a range of alternative sub-asset classes and specialist underlying investment funds. With this in mind we have three on-going objectives: diversification from traditional assets, attractive income generation and long-run inflation protection. Our strategy provides access to parts of the market that advisers may not be aware of or perhaps don't have the experience of investing within. The broad universe of alternatives available means we also see many more complex asset classes that can put investors off, but to us provides opportunity. Most alternative funds target diversification, but not all also offer potential for income generation and inflation sensitivity.

  1. Since the fund was launched in 2014, there have been a number of sell-offs in equity markets. How concerning are these bouts of volatility?

We have faced several important tests since the inception of the fund in August 2014, and not just from the equity market - the bond market has also had patches of high volatility. These have all had different drivers relevant to the specific period. Most recently, worries over inflation concerns in the US and an increase in political risk has marked an inflection point in market volatility. The fact that the fund is fully unconstrained means that we can construct the portfolio to shelter from the areas of market stresses and incorporate some portfolio hedges to help out.

In addition, many of our investments are more sensitive to longer economic cycles than to the shorter-term noise the equity market can bring. Managing a long-only portfolio means that it can be difficult to generate strong positive returns when most assets are in retreat; however in each case of market volatility we have protected capital well which we see as a positive outcome for the environment.

  1. What's your outlook?

We expect equity market volatility to persist as President Trump seeks to make Americans richer at the expense of the rest of the world. This uncertainty should lead to greater demand for defensive investments, particularly real assets that can also withstand or benefit from inflationary pressures. While this hasn't been a priority for investors in the post-crisis period, we believe that the combination in the US of robust domestic growth, falling unemployment and greater restrictions on cheap imports could all contribute to the inflationary pressures that have been building over the past few years.

*achieving a five diamond rating from Defaqto for multi-asset income.