Investing in the ‘Real Asset’ Australian Dream
Ashton Reid, Portfolio Manager, Legg Mason (Martin Currie)
As population grows so does the patronage of real assets
Real Asset returns are typically driven by population and urbanisation growth. What might surprise you is that Australia actually has one of fastest growing populations in both the developed and developing world, as can be seen in the chart.
That strong population growth story drives our urban sprawl, best evidenced in these satellite images of the city of Hume, some 27km north on the outskirts of Melbourne1.
“Between 2016 and 2041, the population for Hume City is forecast to increase by 164,797, or 2.36% p.a.4”
Why not outpace inflation yourself
As a whole, what we like to describe as the household ‘pain spend’ on life’s essentials has consistently grown higher than both wages and the CPI5. One way to get ahead of that crimp on spending power is a Real Asset investment that can hedge against the unavoidable rising cost of living.
Pain spend, wages and CPI (year on year growth %)
The real advantage, invest in the dream
The ‘everyday life’ nature, and strong market position, of Real Assets means their key drivers are often quite independent of the business cycle. Offering security in market downturns, as well as upside growth potential, Real Assets generally can protect future income from inflation.
In our eyes, the more predictable free cash flows that drive dividends help shape the Real Asset dream. This attractive income and strong population growth driver is rounded out by the typically low correlation to other asset classes and in particular broader equity markets.
ASX listed Real Assets have a long history, so we have seen high quality Real Asset listings over a prolonged period. It’s not widely known that Australia had one of the earliest REIT markets globally, infrastructure and utility listings then followed.
For example, GPT Group, owner of some of Australia’s premier office, industrial and shopping centre assets first listed in 1971. Transurban, the dominant owner of over 70% of Australia’s toll-road network, listed back in 1996. This means some of the best quality and highest barriers to entry assets form the ASX listed Real Asset universe, and they often therefore enjoy strong pricing power and can grow their dividends above inflation.
Real assets, a low volatility, high income solution
With low bond yields and equity market volatility continuing, these are challenging times for investors looking for stable and growing return streams. In this environment, we believe that an investment in what can be described as a ‘Real Asset’ Australian dream can offer a compelling low-risk income exposure.
The Legg Mason Martin Currie Real Income Fund, a benchmark unaware strategy which focuses on high quality Real Assets has provided solid, consistent income and total returns, with consistent low volatility since inception, despite the headwinds for the wider equity markets. The expected next twelve-month dollar income has also seen growth of over 6% p.a since inception in December 2010, which has kept dollar income well above the CPI7.
Five year rolling risk and returns (% p.a)
Source: Martin Currie Australia; as of 30 June 2019. Data calculated for the Legg Mason Martin Currie Real Income Fund in A$ net of management fee. Rolling 5-year periods annualised. Inception Date: 1 December 2010. This strategy is not constrained by a benchmark, however for comparison purposes the account is shown against the S&P/ASX 200 Accumulation Index and the S&P/ASX A-REIT 300 Accumulation Index. Past performance is not a guide to future returns.
Growth since inception (% p.a)
Source: Martin Currie Australia, Factset as of 30 June 2019
1 Source: Google Earth; as at 31 May 2019.
2 Source: Martin Currie Australia, UN; as at 30 June 2018; United Nations, Department of Economic and Social Affairs, Population Division (2014). World Urbanization Prospects: The 2014 Revision.
3 Source: Martin Currie Australia, company reports; as at 31 May 2019.
4 Source: .id the population experts; as at 31 May 2019. 5 Source: Martin Currie Australia, ABS, FactSet; as at 31 March 2019. Includes cost of rent & other dwelling services, interest on dwellings, insurance & other financial services, household electricity & gas & fuel, household healthcare, operation vehicles.
5 Source: Martin Currie Australia, ABS, FactSet; as at 31 March 2019. Includes cost of rent & other dwelling services, interest on dwellings, insurance & other financial services, household electricity & gas & fuel, household healthcare, operation vehicles.
6 Source; RBA, as at 2 July 2019.
7 Source: Martin Currie Australia, FactSet; as at 30 June 2019. Data calculated for the representative Martin Currie Australia Real Income account in A$ net of investment advisory fees, broker commissions, and all other expenses borne by investors. An annual fee rate of 0.50% has been used in the presentation of net performance data. This is our standard fee offering for a A$100 million mandate for this strategy. This fee may vary from other strategy accounts that the investment advisor manages. The figures provided include the re-investment of dividends. Inception Date: 1 December 2010. This performance record is a clear representation of the strategy’s performance over the periods shown. Performance information showing five years (or since inception) in complete 12-month periods is available upon request.
Past performance is not a guide to future returns. Legg Mason Asset Management Australia Ltd (ABN 76 004 835 849 AFSL 240827) is part of the Global Legg Mason Inc. group. Any reference to ‘Legg Mason Australia’ or ‘Martin Currie Australia’ is a reference to Legg Mason Asset Management Australia Limited. ‘Martin Currie Australia’ is a division within Legg Mason Asset Management Australia Limited. Legg Mason Australia is the responsible entity of the Legg Mason Martin Currie Real Income Fund (ARSN 146 910 349) (Fund). Martin Currie Australia is the fund manager of the Fund. Before making an investment decision you should read the Product Disclosure Statement (PDS) for the Fund carefully and you need to consider, with or without the assistance of a financial advisor, whether such an investment is appropriate in light of your particular investment needs, objectives and financial circumstances. The PDS is available and can be obtained by contacting Legg Mason Australia on 1800 679 541 or at www.leggmason.com.au. The information provided should not be considered a recommendation to purchase or sell any particular security. It should not be assumed that any of the security transactions discussed here were, or will prove to be, profitable. The information contained in this paper has been compiled with considerable care to ensure its accuracy. But no representation or warranty, express or implied, is made to its accuracy or completeness. Market and currency movements may cause the capital value of shares, and the income from them, to fall as well as rise and you may get back less than you invested. Martin Currie has procured any research or analysis contained in this presentation for its own use. It is provided to you only incidentally, and any opinions expressed are subject to change without notice. The opinions contained in this document are those of the named manager(s). They may not necessarily represent the views of other Martin Currie managers, strategies or funds. Please note the information within this report has been produced internally using unaudited data and has not been independently verified. Whilst every effort has been made to ensure its accuracy, no guarantee can be given. Some of the information provided in this document has been compiled using data from a representative account. This account has been chosen on the basis it is an existing account managed by Martin Currie, within the strategy referred to in this document. Representative accounts for each strategy have been chosen on the basis that they are the longest running account for the strategy. This data has been provided as an illustration only, the figures should not be relied upon as an indication of future performance. The data provided for this account may be different to other accounts following the same strategy. The information should not be considered as comprehensive and additional information and disclosure should be sought ahead of any planned investment. The distribution of specific products is restricted in certain jurisdictions, investors should be aware of these restrictions before requesting further specific information.