4 resilient themes with strong tailwinds

A few things are true of today’s market. There’s divergence in central bank policy, increasing geopolitical risks and if we turn specifically to equities, a high concentration risk in a very small number of tech giants in the US. Uncertainty is the name of the game when it comes to investing. For many investors, the daily news cycle is a source of constant stress.

It’s one cycle that Wilson Asset Management’s Dania Zinurova doesn’t need to focus on too much as the portfolio manager for WAM Alternative Assets.

“The values do not change daily, or intra-daily, weekly or monthly. It’s a very different valuation cycle,” she says.

Zinurova invests across real assets, private equity and debt, real estate and cash. With assets like water rights and farmland part of the mix, you are more likely to find Zinurova watching weather patterns and global trade.

4 key themes for investing

Thematic investing is often treated as an investment buzzword, but it’s far from that in Zinurova’s portfolio. It’s about longevity and future growth.

“We tend to focus on sectors of businesses that are likely to be more resilient over the long term. To be more resilient, we need to look at long-term economic trends with strong tailwinds,” says Zinurova.

Zinurova aims to find the areas where she expects to see the greatest ongoing demand and where supply may be challenged.

The key areas she focuses on include:

1. The ageing population
2. Digitalisation
3. Growing demand for food
4. The energy transition

The food demand theme is the most dominant in the WAM Alternative Assets portfolio at present, albeit not intentionally. Currently, the portfolio’s largest allocation is to Real Assets, things such as water rights and agriculture investments. And Zinurova has seen extraordinary growth in both.

“The value of water entitlements in Australia nearly doubled over the last 10 years,” she says before adding:

“If we look at the value of farmland in Australia and see how the value changed over the last 10 years, it grew by nearly 150%.”

These obviously behave quite differently to equities and fixed-income markets – which arguably is a benefit in times like this.

With water increasingly a scarce resource, the value of rights continues to increase, though she cautions the income from rents is more volatile and weather-dependent.

“When it rains, the rents for water allocations go down,” she says. In the last drought, one megalitre of water cost about $900. Today it’s as little as the cost of bottled water - $5.

The case for alternatives in your portfolio

Investors are increasingly turning to alternative assets for their portfolios – you only need to look at the Future Fund, Australia's sovereign wealth fund, as an example. Just a few years ago, equities, fixed income and perhaps some real estate would have been the bulk. Today, alternatives and private equity in particular are substantial allocations.

For Zinurova, the benefits of using diversified alternatives in a portfolio are simple: “diversification and the potential for outsized returns”.

Learn more and hear some of the interesting assets Zinurova invests in for the WAM Alternative Assets portfolio in this video as part of Livewire's Alternatives in Focus series.

Timestamps:

• 0:00 - Introduction 
• 0:18 - How Zinurova is positioned in the current market 
• 5:45 - The four focus themes for WAM Alternatives 
• 8:50 - Which theme is the most dominant exposure and why 
• 10:35 - Preferred investments in the Real Assets allocation 
• 14:20 - The key opportunities in Private Equity 
• 16:21 - The changing cash allocation in the portfolio and where cash has been deployed 
• 17:39 - How to use alternative assets in a portfolio

Access alternatives in one click

WAM Alternative Assets (ASX: WMA) is the only listed investment company on the ASX that offers investors access to a diversified portfolio of alternative assets, typically accessible only by institutional investors. It aims to deliver absolute returns through a combination of dividend yield and capital growth, while providing diversification benefits. Find out more here.