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Real Assets: US MLPs Are At Historically Attractive Levels

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Income focused traders will be interested to know that MLPs are trading at historically attractive levels, at least according to management at Brookfield’s Real Assets Income Fund. Larry Antonatos is a Managing Director and Portfolio Manager on the Real Assets Solutions Team for Brookfield’s public securities group. In that role he oversees portfolio construction and asset allocation.

Mr. Antonatos just delivered the annual portfolio update and market outlook for the Brookfield Real Assets Income Fund. The Real Assets Income Fund is a highly dynamic closed-end fund with investments spanning the real assets universe. The fund is diversified across asset classes and industry targeting high-yield corporate bonds, securitized credit (residential and commercial mortgage backed securities), and real assets equities.

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The outlook for real assets in 2019 is good. The US is expected to lead global economic growth albeit at a slightly slower pace. Trade relations with China are going to weigh on growth this year and next if not resolved soon but they will not stop growth.

Inflation shouldn’t be a problem in 2019. The Core Consumer Inflation PCE index is trending below the FOMC’s 2.0% target rate and upward pressure appears to be contained. The only risk to inflation is the trade negotiations and those are primarily to the downside.

Interest rates are expected to remain low and range bound. The ten-year Treasury should range between 2.75% and 3.25%. Demand for bonds should slip as the FOMC allows its bond-reinvestment program to wind down.

The FOMC is not expected to hike rates, nor is the ECB or BOJ. The FOMC will be the least accomodative of the central banks but still relatively easy in terms of policy. The ECB and BOJ are both expected to be accomodative and may easy policy this year. China is expected to easy policy and enact other measures to stimulate its economy.

On a sector lever there are two that stand out as attractive this year. The global listed equities are fairly valued, leaning toward attractive, while the US listed MLPs are trading at what Brookfield finds compelling price valuations.

Brookfield’s Real Assets Income Fund is a closed-end fund trading on the New York Stock Exchange under the ticker (RA). It’s goal is to provide high current income and long-term capital appreciation through a dynamic investment approach. The fund yields 11.0% at today’s share prices.