Asset Classes

Property

Property, such as offices, shops and factories, can provide returns from both income and capital growth. Property may be listed on a stock exchange, such as listed property trusts, or owned directly.

Much of the return from property comes from rental income, although well-located property can be expected to rise in value over the longer term, providing some capital growth.

Historically, property has provided higher returns than defensive investments like fixed interest, but lower returns than shares.

Infrastructure assets

Infrastructure investments, such as roads, railways and airports, are the building blocks which keep an economy running smoothly.

They can be attractive investments as they usually have long operating lives, generate a growing stream of income, a high level of inflation protection, and in most cases have little competition.

The very long-term nature of most infrastructure assets means they can be less volatile than other growth assets like shares and property.

Diversifying strategies

The investment aim of diversifying strategies within a broader investment portfolio is to provide diversification benefits to traditional asset classes.

They include hedge funds, insurance-linked strategies, private debt, emerging market debt, private equity, venture capital, and agriculture.

Diversifying strategies may use complex investment strategies like short selling, derivatives trading or provision of funding to start-up companies.

They seek sources of investment risk and return that are materially different to traditional asset classes, resulting in lower volatility of returns, and provide some downside protection within a broader investment portfolio, particularly against adverse equity or bond market movements.

Diversified fixed interest

Diversified fixed interest investments pay regular interest and mature on a specified date. They include government and corporate bonds and debentures.

Diversified fixed interest is secure if held until maturity when the full face value is payable, but there is the potential for short-term changes in value due to the movement of market interest rates.

They offer a higher level of security than shares and property, but provide a lower return over the long term.

Cash

Cash is money held on deposit with a bank or in money-market securities. Cash is highly secure and usually available at call. Returns from cash are typically lower than from other asset classes.

Returns from cash come from the interest paid on the deposit. Cash is suited to those investing for a short period of time or those seeking a very high level of security.

Over time, returns from cash may not keep pace with inflation resulting in a loss of purchasing power.

Private equity

Private equity seeks to deliver superior returns by acquiring stakes in private companies and then pursuing an active role in monitoring and advising the companies, improving operational and corporate governance, and then selling after a period of time at a premium.

The Private equity asset class contains high risk, high expected return investment strategies which are often opportunistic, and may include private equity, private credit, agricultural investments and opportunistic property and infrastructure strategies.

Private equity assets are mostly illiquid because they are traded privately rather than on an exchange.