Understanding the drivers of corporate value is a critical aspect of portfolio management. Some operational elements of a company, such as environmental stewardship, management decision-making, or corporate culture may not be immediately apparent in the organization's financial statements. Such factors can play a pivotal role in a company's long-term performance.
Robust infrastructure is crucial for growing and enriching economies. In the wake of the global economic crisis, how will nations fund state-of-the-art bridges, toll roads, airports, seaports, and data towers? Governments are relying more often on privatization. In accordance with shifts in economic and political policies, governments around the world are using privatization for many large mission-critical projects. Investors, for their part, may be attracted by the chance for equity exposure as well as the bonus benefit of an asset with intrinsic value, predictable expenditures, and stable cash flows.
Why Invest in Real Estate?
History shows that real estate can offer intrinsic value and income potential for many investors. We believe investors use this asset class as an integral part of a robust portfolio risk management strategy. Need a hedge against long-term inflation? Real estate has often demonstrated its effectiveness, along with common stocks, in helping investors achieve this goal. Due to low correlation (i.e. linkage or dependency) with securities, we believe real estate can be used for portfolio diversification to provide access to income growth.
In periods of anticipated growth and inflation, we recommend investors:
- understand the drivers of inflation
- devote adequate attention to long-term planning
- consider innovative choices for asset allocation
Broader diversification in longer-term scenarios increases chances for portfolio resistance. We invite investors to consider some core strategies for long-term inflation hedging.
Traditional market cap weighted indexing, such as with ETFs that track benchmarks like the S&P 500, attempt to replicate the holdings and weightings of the index. The stocks having the most weight in the index have the most weight in the ETF.
With the growth of strategic beta and factor investing, the use of tilting can enhance exposure to markets like U.S. equities, developed markets, emerging markets, and others, with a focus on the portions of these market segments that have the possibility of adding the most value for investors through an alternative weighting methodology.
At the turn of the century, investing guided by principles related to environmental, social and corporate governance (ESG) issues was almost completely separate from investing aimed at obtaining maximum long-term capital growth or minimizing risk exposure. ESG investors either hoped their investments would advance corporations that then promoted ESG principles or excluded them from their portfolio entirely. Investment gain or loss considerations for these investors, was usually a secondary concern. If anything, the belief among mainstream investment analysts was that including ESG factors in consideration of investments would weaken an investment portfolio.
It’s no surprise that commercial real estate was one of the major casualties of the recent economic recession. But, then, neither is their comeback in a recovery that has offered low interest rates and depressed real estate prices. In fact, real estate is so widely acknowledged as a distinct and important asset type that it will receive its own sector classification this year, separating it from the financial services sector. And equity REIT ETFs that offer baskets of various-sized REITs may present a liquid and low-cost way to invest in this newest 11th asset sector.
Before investing, carefully consider the FlexShares investment objectives, risks, charges and expenses. This and other information is in the prospectus, a copy of which may be obtained by visiting www.flexshares.com. Read the prospectus carefully before you invest. Foreside Fund Services, LLC, distributor.
An investment in FlexShares is subject to numerous risks, including possible loss of principal. Fund returns may not match the return of the respective indexes. The Funds are subject to the following principal risks: asset class; commodity; concentration; counterparty; currency; derivatives; dividend; emerging markets; equity securities; fluctuation of yield; foreign securities; geographic; income; industry concentration; inflation-protected securities; interest rate / maturity risk; issuer; management; market; market trading; mid cap stock; natural resources; new funds; non-diversification; passive investment; privatization; small cap stock; tracking error; value investing; and volatility risk. A full description of risks is in the prospectus.