Aviva Investors Real Assets House View 2021: digital infrastructure and long income offer investors best growth opportunities

(London) – New-build digital infrastructure is expected to deliver the highest returns, whilst the UK looks set to outperform Europe across several real asset sectors and strategies in the medium term, according to the second annual Real Assets House View from Aviva Investors, the global asset management business of Aviva plc (‘Aviva’).

house view

The Real Assets House View, which brings together the views and analysis of investment teams in real estate, infrastructure and private debt, provides a foundation from which Aviva Investors can make relative-value decisions regarding multi-asset allocations.

Aviva Investors expects new-build digital infrastructure such as rural fibre broadband to deliver the highest total return over five years for institutional investors. This view reflects the findings of Aviva Investors’ 2020 Real Assets Study, where pension fund and insurance companies surveyed said that capital growth is increasingly viewed as an “integral” or “important” part of their real asset investments.

Mark Versey, Chief Executive Officer1 at Aviva Investors, commented:

“Whilst resilience and cashflow-matching remain strongly favoured characteristics of real assets, investors are increasingly aware of the return diversification benefits on offer, and that is reflected in how investment strategies are evolving. Digital infrastructure is a good example of this trend in action, which also carries a significant societal benefit, for example better connecting communities and helping to support businesses in rural locations.”

Aviva Investors also expects UK levered long-lease real estate to deliver high relative-value, with the sector’s cashflow stability and the availability of competitively priced, long-dated debt allowing high-quality assets to be levered without unduly increasing risk. The result has seen long-income strategies benefit from relatively secure income and returns over the last twelve months. Looking at real estate sectors, Aviva Investors identified logistics as being the most attractive on a risk-adjusted basis, driven by both cyclical and structural factors.

Chris Urwin, Director of Research, Real Assets, at Aviva Investors, said:

“Long-lease real estate assets let to highly creditworthy counterparties have proven their resilience over the last twelve months. Looking ahead, low capital expenditure and inflation-linked rental growth, makes the sector look attractive. With more investors recognising the attractiveness of long income, we are seeing greater competition for smaller assets. As a result, larger assets could offer relative value in many sectors; for these reasons, we expect long-lease assets to play an important role in real estate portfolios. The pandemic has also focused minds on establishing resilient supply chains and the value of holding inventory. We expect that to last and are very supportive of the logistics sector in the medium to long-term.”

With decarbonisation of buildings an essential component of achieving net zero emissions, one challenge for the real estate industry is that the benefits of these initiatives materialise over longer time periods than typical lease lengths, making it unclear whether landlords will be compensated for such investments. Aviva Investors believes long-income investors are well-placed to tackle this misalignment: due to tenants’ long-term occupation of buildings, they often have more interest in an asset’s sustainability criteria as it reduces their energy costs over time.

Aviva Investors also expects low-carbon assets to continue to deliver value for infrastructure investors, which has been a resilient sector through the pandemic and offers an expanding range of opportunities. It expects better value to be found in more complex areas, with investors holding expert knowledge in these sectors and technologies likely to gain most advantage.

Mark Versey added:

“When we published our first Real Assets House View a year ago, the economic outlook was vastly different to today. As we contend with the changes in economic outlook, our expectation is that ESG factors will increasingly be a key underpinning of long-term performance. With businesses, industries and nations committing to net zero emissions by 2050 or earlier, investing in decarbonisation of the built environment is essential, with real estate markets not yet sufficiently pricing in differentials in buildings’ sustainability credentials. As appetite for real assets grows, we are seeing more clients wishing access to more complex or niche sectors, increasing the importance of specialist knowledge, sophisticated portfolio construction and research-based investment approaches.”

1 Subject to regulatory approval

Real Assets House View 2021

The intelligence that guides our investment decisions 

Find out more

For more information contact:

A picture of James Morgan

James Morgan

Media Relations Manager

A picture of Steve Ainger

Steve Ainger

Head of Media Relations

Important information

Except where stated as otherwise, the source of all information is Aviva Investors Global Services Limited (AIGSL). Unless stated otherwise any views and opinions are those of Aviva Investors. They should not be viewed as indicating any guarantee of return from an investment managed by Aviva Investors nor as advice of any nature. Information contained herein has been obtained from sources believed to be reliable but has not been independently verified by Aviva Investors and is not guaranteed to be accurate. Past performance is not a guide to the future. The value of an investment and any income from it may go down as well as up and the investor may not get back the original amount invested. Nothing in this material, including any references to specific securities, assets classes and financial markets is intended to or should be construed as advice or recommendations of any nature. Some data shown are hypothetical or projected and may not come to pass as stated due to changes in market conditions and are not guarantees of future outcomes. This material is not a recommendation to sell or purchase any investment.

In Europe this document is issued by Aviva Investors Luxembourg S.A. Registered Office: 2 rue du Fort Bourbon, 1st Floor, 1249 Luxembourg. Supervised by Commission de Surveillance du Secteur Financier. An Aviva company. In the UK Issued by Aviva Investors Global Services Limited. Registered in England No. 1151805.  Registered Office: St Helens, 1 Undershaft, London EC3P 3DQ.  Authorised and regulated by the Financial Conduct Authority. Firm Reference No. 119178.

In Singapore, this material is being circulated by way of an arrangement with Aviva Investors Asia Pte. Limited (AIAPL) for distribution to institutional investors only. Please note that AIAPL does not provide any independent research or analysis in the substance or preparation of this material. Recipients of this material are to contact AIAPL in respect of any matters arising from, or in connection with, this material.  AIAPL, a company incorporated under the laws of Singapore with registration number 200813519W, holds a valid Capital Markets Services Licence to carry out fund management activities issued under the Securities and Futures Act (Singapore Statute Cap. 289) and Asian Exempt Financial Adviser for the purposes of the Financial Advisers Act (Singapore Statute Cap.110). Registered Office: 1Raffles Quay, #27-13 South Tower, Singapore 048583. In Australia, this material is being circulated by way of an arrangement with Aviva Investors Pacific Pty Ltd (AIPPL) for distribution to wholesale investors only. Please note that AIPPL does not provide any independent research or analysis in the substance or preparation of this material. Recipients of this material are to contact AIPPL in respect of any matters arising from, or in connection with, this material. AIPPL, a company incorporated under the laws of Australia with Australian Business No. 87 153 200 278 and Australian Company No. 153 200 278, holds an Australian Financial Services License (AFSL 411458) issued by the Australian Securities and Investments Commission. Business Address: Level 30, Collins Place, 35 Collins Street, Melbourne, Vic 3000, Australia.

The name “Aviva Investors” as used in this material refers to the global organization of affiliated asset management businesses operating under the Aviva Investors name. Each Aviva investors’ affiliate is a subsidiary of Aviva plc, a publicly- traded multi-national financial services company headquartered in the United Kingdom. Aviva Investors Canada, Inc. (“AIC”) is located in Toronto and is registered with the Ontario Securities Commission (“OSC”) as a Portfolio Manager, an Exempt Market Dealer, and a Commodity Trading Manager. Aviva Investors Americas LLC is a federally registered investment advisor with the U.S. Securities and Exchange Commission. Aviva Investors Americas is also a commodity trading advisor (“CTA”) registered with the Commodity Futures Trading Commission (“CFTC”) and is a member of the National Futures Association (“NFA”).  AIA’s Form ADV Part 2A, which provides background information about the firm and its business practices, is available upon written request to: Compliance Department, 225 West Wacker Drive, Suite 2250, Chicago, IL 60606.

Latest company news