The Best of GMTL: 5 Top Investment Managers Share Their Insights

Investec on the U.S.’s partnership with Africa, Pimco’s tips on REITs and more from BlackRock, KKR and J.P. Morgan Asset Management.

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The Shared Goals of the U.S. and Africa

Public and private entities in the U.S. are making inroads into partnerships with emerging Africa — and “it’s about time,” writes Aniket Shah of Investec Asset Management. With annual growth of more than 5 percent during the past decade, sub-Saharan Africa is the world’s second-fastest-growing economic region. To promote stability and development across Africa, the U.S. private sector should take a more active role. “The U.S. is home to one of the largest savings pools in the world, and Africa is the most capital-starved region in the world,” Shah writes. “There is a natural dynamic here that can be easily directed.”

Bridging Gaps in Infrastructure Investment

Infrastructure investment, including those by way of public-private partnerships, can spur job growth and have knock-on effects on local development. Raj Agrawal of KKR cites his firm’s partnership with water service company United Water in revamping the municipal water system of Bayonne, New Jersey. “Moody’s upgraded Bayonne’s municipal bond outlook from negative to stable in part because of the investment,” he mentions.

The REIT Choices

The commercial real estate sector is back at its prerecession fighting weight. As Amit Arora and Ray Huang of Pacific Investment Management Co. write, institutional-quality property values are some 5 to 10 percent above their 2007 peak. But “not all real estate is created equal.” When allocating to bonds issued by real estate investment trusts, investors should seek out real estate subsectors that have below-average capital expenditure requirements and steady cash flow, such as high-barrier apartment and office space, self-storage and hotel C corporations. Real estate classes with weak prospects include suburban office parks and hotel REITs because of their high capital expenditures.

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On the Rebound: Local-Currency Emerging-Markets Debt

With a 5 percent drop in January, local-currency emerging-markets debt got off to a shaky start in 2014. But it has since jumped back up, showing returns in excess of 10 percent. According to Michael Hood of J.P. Morgan Asset Management, reasons include fairly high carry, a drop in yields and recovery among emerging-markets currencies. Caution may still be warranted, Hood warns. “Conditions appear to be changing in ways that may undermine local-currency emerging-markets debt.”

BlackRock’s Rallying Call

In a December column, Martin Hegarty of BlackRock encouraged investors not to shy away from longer-duration assets and in fact look to accumulate on any further weakness as long-forward rates looked very cheap relative to recent history. Given the move that has transpired during the first half of 2014, Hegarty thought it would be worthwhile to “‘mark-to-market’ our views, given the change in recent valuations along the yield curve” so far this year.

Emerging-Markets Refridgerators Offer Cold, Hard Data

A peek into someone’s refrigerator can disclose more than just an overreliance on takeout; it can reveal a country’s stage of development. Working-class families and those in poorer countries, writes Tassos Stassopoulos of AllianceBernstein, tend to stock their fridges — themselves a sign of economic development — with staple items such as eggs and produce. Households in the next phase of prosperity go for what Stassopoulos calls “indulgences,” like ice cream. More affluent families and economies opt for nonfat yogurt and other healthier items. This economic framework goes beyond the grocery aisle, he explains: “Those who stock their fridge with indulgence items are more likely to spend in other areas, such as going to the movies.” • •

Read more from this series at institutionalinvestor.com/gmtl.

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