Real assets equity investments have begun to catch up with debt strategies on an absolute return basis as outlooks start to improve.
Aviva Investors, the global asset management business of Aviva, said it was now seeing “significant pockets of value” after 18 months of volatility and repricing and expects to see “continued improvement heading into 2024”.
David Hedalen, head of real assets research at Aviva Investors, said: “Debt markets typically react rapidly to changes in the rate environment, and therefore reprice quickly off the back of market movements. This sits in contrast to real asset equity markets, which can take a bit more time to adjust.
“But, broadly speaking, the repricing we have seen as a result of market turmoil has largely occurred.
“While some risks clearly remain, in the absence of further developments, we think markets are beginning to stabilise and offer significant pockets of value.”
Despite this, Aviva Investors says in its latest Relative value in real assets report that debt strategies remain compelling, with higher interest rates across markets unlikely to change in the near term and contributing to their continued appeal.
Looking across geographies, the report says equity investments in the UK are currently looking more attractive than Europe on an absolute basis, despite the weaker growth outlook for the UK.
Hedalen said: “Repricing for real estate in the UK has been rapid, which sits in contrast to Europe. In our view, this puts the UK further ahead on its journey.
“Within our propriety modelling this quarter, we have seen European returns catch-up with the UK, whilst offering lower volatility.
“In reality, this has merely closed the gap between the two markets, with the UK still offering higher absolute returns compared to the continent.”
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