Cohen & Steers Diversified Real Assets

Investment process

The fund invests in four key areas. These are typically tangible assets that feature early in the supply chain, which are either the structures or materials that can facilitate economic growth. These are global real estate, commodities, natural resources and listed infrastructure. These are combined to offer a range of drivers at different points in the economic cycle, as well as a strong level of inflation protection.

Each of these assets offers different risk and return profiles. The team will first look at the macroeconomic backdrop to determine the allocations between each, before filling up those allocations with individual securities. As the portfolio is a combination of all the different asset classes, each team at Cohen & Steers has an input into this fund. Vince then considers everyone’s ideas before using the best to create the portfolio.

The process itself starts with an allocation model which helps determine where to be under/overweight asset classes, with a six to 12-month investment horizon. The model takes in multiple different inputs including inflation and interest rates, equity risk premiums, as well as factors such as the strength of the dollar and the oil price. Each asset will have different sensitivities to these factors, and these are balanced against prevailing market conditions. Vince uses the diversification benefits of different asset classes and their sub classes to manage the overall risk of the portfolio.

From this framework, the asset allocation strategy group will assess where the current portfolio is positioned, how it is performing and what risks it is taking, and how this fits with the allocation model. This helps to determine within each asset class where to allocate. For example, within commodities, the team will choose how to split the portfolio between energy, agricultural products, precious metals and industrial materials. With the inputs from this phase, Vince will set the allocations.

The dedicated team in each asset class will analyse individual securities and pick their best ideas. These teams are responsible for mandates elsewhere in the business and use their expertise and ideas to fill this portfolio according to the guidelines set. In order to get exposure to these assets, the fund will either buy the same holdings as the dedicated teams, or in the case of commodities will use derivatives for better efficiency. The fund can also allocate up to 10% in fixed income which is used as a strategic allocation and tactical risk management tool.

After filling the portfolio allocations, the individual managers will also provide feedback from what they are seeing ‘on the ground’ to Vince. This is fed back into the allocation model at the beginning of the process to help determine the allocations going forward. This leads to a highly iterative process which takes input from all stakeholders and their expertise at the firm.