|Equity||Yield, growth potential, lower volatility, limited liquidity||Yield, growth potential, liquidity, diversification|
|Debt||Yield, lower risk, lower volatility, limited liquidity||Yield, lower risk, liquidity, 30-year maturities|
Infrastructure Debt: Pipeline to yield, diversification and lower risk
Institutional investors understand that infrastructure is a distinct asset class offering powerful diversification benefits. But they often overlook the primary source of funding for U.S. public infrastructure—municipal bonds. These public debt securities historically have offered attractive yields, high credit quality, and very low default rates, compared to similarly-rated corporate bonds. Muni bonds’ particular risk-return profile can serve as a diversifying complement to corporate bonds and sovereign debt, with potential to increase portfolio risk-adjusted returns.
Data for assets under management are as of March 31, 2017.
1 Pensions & Investments, October 3, 2016. Rankings based on total worldwide real estate assets under management, net of leverage, as of June 30, 2016 reported by each responding asset manager.
2 Portfolio analysis comparing traditional stock-bond portfolios with portfolios adding infrastructure exposure.
Sharpe Ratio - a measure of risk-adjusted returns — is defined as the level of return based onthe level of risk. When comparing investments, a higher Sharpe Ratio indicates better returns relative to the risk taken.
Sources: Cambridge Associates, Morningstar Direct, Nuveen, LLC. Performance data reftect annualized returns and standard deviation for the following indexes for the period 2002-2015, except as noted: Infrastructure private equity (Cambridge Associatesindex of 86 infrastructure private equity funds covering vintage years 2002-2015, based on net internal rate of return (IRR) to limited partners); infrastructure private debt (two public indexes with equivalent credit ratings serve as proxies: DOW Jones Brookfield Global Infrastructure Corporate Bond BBB Index, 2004-2015, and S&P 500 BBB Investment Grade Corporate Bond Index, 2002-2003); infrastructure public equity (S&P Global Infrastructure Index); infrastructure public debt (Bloonlberg Barclays Revenue Bond Index); traditional 60% / 4004 portfolio (MSCIAU Country World Index, 60%, and Bloomberg Barclays U.S.Aggregate Bond Index, 40%. It is not possible to invest in an index. Performance for indexes does not reflect investment fees or transaction costs. Results may be significantly different for other time periods.
3 Performance of public infrastructure stocks vs. U.S.and non-U.S. equties.
Sources: Morningstar Direct, Nuveen, LLC. Performance reflects quarterly returns, standard deviation, and Sharpe Ratio for the 14-year period, 2002-2015. Sharpe Ratio uses 1-year Treasury rate as risk.free rate. Performance is based onthe following indexes: Infrastructure public equity (S&P Global Infrastructure Index); U.S.equity (S&P 500 Index); non-U.S.equity (MSCI All Country World ex USA Index). It is not possible to invest in an index. Performance for indexes does not reflect investment fees or transaction costs. Results may be significantly different for other time periods.
4 Yields and Default Rates: Municipal Bonds (infrastructure) vs.Corporate Bonds
This material is presented for informational purposes only and may change in response to changing economic and market conditions. This material is not intended to be a recommendation or investment advice, does not constitute a solicitation to buy or sell securities, and is not provided in a fiduciary capacity. The information provided does not take into account the specific objectives or circumstances of any particular investor, or suggest any specific course of action. Financial professionals should independently evaluate the risks associated with products or services and exercise independent judgment with respect to their clients. Certain products and services may not be available to all entities or persons. Past performance is not indicative of future results.
Economic and market forecasts are subject to uncertainty and may change based on varying market conditions, political and economic developments. As an asset class, real assets are less developed, more iliquid, and less transparent compared to traditional asset classes. Investments will be subject to risks generally associated with the ownership of real estate-related assets and foreign investing, including changes in economic conditions, currency values, environmental risks, the cost of and ability to obtain insurance, and risks related to leasing of properties. Diversification is a technique to help reduce risk. There is no guarantee that diversification will protect against a loss of income.
Nuveen, LLC, formerly known as TIAA GlobalAsset Management, delivers the expertise of TIAA Investments and its independent investment affiliates.