When the going gets tough–and things are definitely getting tough–it helps to hold stocks that are able to withstand the tumult and uncertainty. Brookfield Asset Management Inc. (TSX:BAM.A)(NYSE:BAM) is one company that I believe is a smart way to diversify your portfolio and withstand the downturn we’re currently experiencing.
For those that don’t know, Brookfield is an asset management firm with US$225 billion of assets under management in countries all around the world, including Canada, Brazil, Australia, and the United States. What Brookfield excels at is finding and buying potentially high-quality companies that are currently distressed, sometimes for macroeconomic reasons and sometimes because of poor management.
Brookfield has one fund called Brookfield Renewable Energy Partners. This operation has more than 7,000 megawatts of power in its portfolio of hydroelectric and wind facilities around the world. It was able to buy up quality assets in the renewable energy sector and then make the fund go public. Brookfield currently owns 65% of this fund, giving it considerable exposure to the renewable sector.
Brookfield has invested in infrastructure projects, real estate, private equity, and numerous other opportunities. But like I said above, what Brookfield is best at is going in to a market that has a high barrier of entry and buying up projects.
Take Brazil, for example. The company has set aside $1.2 billion to buy entire infrastructure projects. Because of debt problems in the country, Brookfield will be able to buy up properties for pennies on the dollar. As the economy returns to its former strength, the value of those projects will increase. Brookfield can then either flip them or keep them on the books to generate significant income. Either way, Brookfield generates great returns.
Another example is the attempted acquisition of Asciano, Ltd. for US$6.6 billion. This is an Australian port business that also owns significant rail operations. The reason this is a smart move is because all goods moving in and out of a country go through a port. This will allow Brookfield to generate consistent returns on its investment.
So what?
While all of the above is great, what does that mean for you? It means two things. First, you’re never going to be able to build a diverse portfolio like Brookfield can because many of its investments are not made available to investors like us. Second, Brookfield is incredible at increasing profitability for its investors.
Consider this scenario: if you had invested $10,000 in Brookfield 20 years ago, you would be sitting on $320,000 today. That is an average of 19% growth every single year for 20 straight years. It is very hard to achieve double-digit growth for consecutive years, yet Brookfield did it on average for 20 in a row.
Its ability to generate this sort of growth and pay a small but steady $0.16/share dividend means that it will help stabilize your portfolio and give you the diversity you need to survive any tumultuous times. I very much believe Brookfield is a smart buy.
