Issue 29: 2015

SPECIALTY ASSET MANAGEMENT

Stable Ground and Strong Foundations

Our 2015 outlook on specialty assets.

Photograph by Andy Ryan

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While volatility in the oil sector dominated headlines and market focus in late 2014 and early 2015, timberland, farmland and certain sectors in commercial real estate emerged as a beacon for weary investors in search of less risky assets. At the same time, timber continued to rebound in step with the housing markets, leading more investors to discover the possible long-term benefits of timberland.

In 2014, specialty assets persisted in generating steady yields and proved to be a valuable hedge against market volatility. Looking forward, we think the U.S. economy could continue to improve in 2015, which should translate into another positive year for these assets. Within each category — oil and gas, farm and ranch land, timberland, commercial real estate and private business — we see specific opportunities that may help hedge portfolios against overall market volatility and potential inflation. And, as always, remember that building and maintaining a diversified strategy with active management is an important step.

Commercial Real Estate Rises
Recovery rates of the four primary property types per quarter.Click to expand

Grounded and moving forward

Sticking to the headlines in specialty asset investing will get you the most dramatic stories, yet these asset classes can also present more-nuanced narratives that offer opportunities that do not make front-page news. With 2015 bringing growth to the U.S. economy, dips in unemployment and — hopefully — favorable weather for crops at home and abroad, we expect that many of these investments will continue to be desirable. And we expect them to continue to act as a hedge against overall market fluctuations and volatility.

IMPORTANT INFORMATION

Investing involves risk. There is always the potential of losing money when you invest in securities.

Projections made may not come to pass due to market conditions and fluctuations.

Past performance is no guarantee of future results. Diversification does not ensure a profit or protect against loss in declining markets.

Always consult with your independent attorney, tax advisor, investment manager and insurance agent for final recommendations and before changing or implementing any financial, tax or estate planning strategy.

OTHER IMPORTANT INFORMATION

International Investing International investing involves special risks, including foreign taxation, currency risks, risks associated with possible differences in financial standards, and other risks associated with future political and economic developments. Investing in emerging markets may involve greater risks than investing in more developed countries. In addition, concentration of investments in a single region may result in greater volatility.

Other Nonfinancial assets, such as closely held businesses, real estate, oil, gas and mineral properties, and timber, farm and ranch land, are complex in nature and involve risks, including total loss of value. Special risk considerations include natural events (for example, earthquakes or fires), complex tax considerations and lack of liquidity. Nonfinancial assets are not suitable for all investors.

Real estate investment trusts (REITs) involve a significant degree of risk and should be regarded as speculative. They are only made available to qualified investors under the terms of a private offering memorandum. Holdings in a REIT may be highly leveraged and, therefore, more sensitive to adverse business or financial developments. REITs are long term and unlikely to produce a realized return for investors for a number of years. Investments in real estate securities can be subject to fluctuations in the value of the underlying properties, the effect of economic conditions on real estate values, changes in interest rates and risks related to renting properties, such as rental defaults.

While volatility in the oil sector dominated headlines and market focus in late 2014 and early 2015, timberland, farmland and certain sectors in commercial real estate emerged as a beacon for weary investors in search of less risky assets. At the same time, timber continued to rebound in step with the housing markets, leading more investors to discover the possible long-term benefits of timberland.

In 2014, specialty assets persisted in generating steady yields and proved to be a valuable hedge against market volatility. Looking forward, we think the U.S. economy could continue to improve in 2015, which should translate into another positive year for these assets. Within each category — oil and gas, farm and ranch land, timberland, commercial real estate and private business — we see specific opportunities that may help hedge portfolios against overall market volatility and potential inflation. And, as always, remember that building and maintaining a diversified strategy with active management is an important step.

Commercial Real Estate Rises
Recovery rates of the four primary property types per quarter.Click to expand

Grounded and moving forward

Sticking to the headlines in specialty asset investing will get you the most dramatic stories, yet these asset classes can also present more-nuanced narratives that offer opportunities that do not make front-page news. With 2015 bringing growth to the U.S. economy, dips in unemployment and — hopefully — favorable weather for crops at home and abroad, we expect that many of these investments will continue to be desirable. And we expect them to continue to act as a hedge against overall market fluctuations and volatility.

IMPORTANT INFORMATION

Investing involves risk. There is always the potential of losing money when you invest in securities.

Projections made may not come to pass due to market conditions and fluctuations.

Past performance is no guarantee of future results. Diversification does not ensure a profit or protect against loss in declining markets.

Always consult with your independent attorney, tax advisor, investment manager and insurance agent for final recommendations and before changing or implementing any financial, tax or estate planning strategy.

OTHER IMPORTANT INFORMATION

International Investing International investing involves special risks, including foreign taxation, currency risks, risks associated with possible differences in financial standards, and other risks associated with future political and economic developments. Investing in emerging markets may involve greater risks than investing in more developed countries. In addition, concentration of investments in a single region may result in greater volatility.

Other Nonfinancial assets, such as closely held businesses, real estate, oil, gas and mineral properties, and timber, farm and ranch land, are complex in nature and involve risks, including total loss of value. Special risk considerations include natural events (for example, earthquakes or fires), complex tax considerations and lack of liquidity. Nonfinancial assets are not suitable for all investors.

Real estate investment trusts (REITs) involve a significant degree of risk and should be regarded as speculative. They are only made available to qualified investors under the terms of a private offering memorandum. Holdings in a REIT may be highly leveraged and, therefore, more sensitive to adverse business or financial developments. REITs are long term and unlikely to produce a realized return for investors for a number of years. Investments in real estate securities can be subject to fluctuations in the value of the underlying properties, the effect of economic conditions on real estate values, changes in interest rates and risks related to renting properties, such as rental defaults.