A diversified blend of real assets can potentially play a vital role in the new regime of higher inflation, higher rates and increased market volatility.
1. Historically attractive risk profile from real assets
Given the desynchronized payoffs of global real estate, listed infrastructure, natural resource equities and commodities, combining real asset within a diversified framework has historically delivered competitive returns with significantly less volatility than global stocks.
Annualized nominal returns and standard deviation
At September 30, 2024. Source: Bloomberg, Cohen & Steers.
Past performance is no guarantee of future results. The information presented does not reflect the performance of any fund or account managed or serviced by Cohen & Steers, and there is no guarantee that investors will experience the type of performance reflected above. There is no guarantee that any historical trend illustrated will be repeated in the future, and there is no way to predict precisely when such a trend might begin.
2. Real assets have historically outperformed in inflationary environments
Ample potential catalysts for a resurgence in inflation warrant a permanent allocation to real assets. These include resilient economies, tight labor markets, fiscal uncertainty, geopolitical tensions and commodity market imbalances. Real assets’ sensitivity (or beta) to the broad global equity market may help to reduce portfolio volatility and improve risk-adjusted returns.
At September 30, 2024. Source: Bloomberg, Cohen & Steers.
Past performance is no guarantee of future results. The information presented does not reflect the performance of any fund or account managed or serviced by Cohen & Steers, and there is no guarantee that investors will experience the type of performance reflected above. There is no guarantee that any historical trend illustrated will be repeated in the future, and there is no way to predict precisely when such a trend might begin.
3. All core real assets appear neutral to attractively-valued
All core real assets classes appear either neutrally or attractively valued to us, with listed infrastructure and natural resource equities the most attractive. In contrast, valuations for the broad global equities market appear to be relatively unattractive.
At September 30, 2024. Source UBS, Bloomberg, Citi Research – US Equity Strategy, Cohen & Steers.
Past performance is no guarantee of future results. There is no guarantee that any historical trend illustrated above will be repeated in the future, and there is no way to predict precisely when such a trend will begin. The information presented above does not represent the performance of any fund or other account managed or serviced by Cohen & Steers, and there is no guarantee that investors will experience the type of performance listed above.
FURTHER READING
What could a second Trump presidency mean for real assets?
Market reaction indicates investors are expecting higher inflation, deregulation, lower taxes and winners and losers in key sectors such as energy and infrastructure.
The benefits of real assets in retirement plans
The economic regime shift now underway could prove challenging for typical allocations, and many fiduciaries are exploring diversification options for retirement plans. Listed real assets may provide an attractive solution.
Maintaining a strategic allocation to real assets
Senior Portfolio Specialist Michelle Butler spoke with Portfolio Adviser for a video interview about how a diversified real assets allocation may benefit investors in the new macroeconomic regime characterized by higher interest rates and inflation compared to the previous decade.
This material represents an assessment of the market environment at a specific point in time and should not be relied upon as investment advice, does not constitute a recommendation to buy or sell a security or other investment and is not intended to predict or depict performance of any investment. This material is not being provided in a fiduciary capacity and is not intended to recommend any investment policy or investment strategy or take into account the specific objectives or circumstances of any investor. We consider the information in this presentation to be accurate, but we do not represent that it is complete or should be relied upon as the sole source of appropriateness for investment. Please consult with your investment, tax or legal professional regarding your individual circumstances prior to investing. An investor cannot invest directly in an index and index performance does not reflect the deduction of any fees, expenses or taxes. Index comparisons have limitations as volatility and other characteristics may differ from a particular investment.
(1) Global Equities are represented by the MSCI World Index. Beta measures the relative volatility of an investment compared with a standard market index. A market index will always have a beta of 1.00. An investment with a higher/lower beta, more/less than 1.00, is more/less volatile than the market index. (2) Real Assets Blend represented by a blend comprised of 27.5% Real Estate, 27.5% Commodities, 15% Natural Resource Equities, 15% Infrastructure, 10% Short Duration Fixed Income and 5% Gold. The real assets blend is not representative of an actual portfolio and is for illustrative purposes only. Real Estate represented by Datastream Developed Real Estate Index through 12/31/89; FTSE EPRA Nareit Developed Index thereafter. Commodities represented by S&P GSCI Index through July 1998 and Bloomberg Commodity Total Return Index thereafter. Natural Resource Equities represented by 50/50 Blend of Datastream World Oil & Gas and Datastream World Basic Materials through 12/31/02; S&P Global Natural Resources Index thereafter. Infrastructure represented 50/30/20 blend of Datastream World Gas, Water & Multi-Utilities, Datastream World Pipelines and Datastream World Railroads through 12/31/02; Dow Jones Brookfield Global Infrastructure Index thereafter. Short Duration Fixed Income represented by ICE BofA U.S. Corporate & Government Index through 12/31/75; ICE BofA 1–3 Year U.S. Corporate Index thereafter. Gold represented by the gold spot price in U.S. dollars per Troy ounce.
Risks of Investing in Real Assets. Investing involves risk, including entire loss of capital invested. A real assets strategy is subject to the risk that its asset allocations may not achieve the desired risk return characteristic, underperform other similar investment strategies or cause an investor to lose money. Risks of investing in REITs are similar to those associated with direct investments in real estate securities, including (i) property values may fall due to increasing vacancies, declining rents resulting from economic, legal, tax, political or technological developments, lack of liquidity, limited diversification and sensitivity to certain economic factors such as interest rate changes and market recessions. The value of commodity-linked derivative instruments may be affected by changes in overall market movements, commodity index volatility, changes in interest rates, or factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments. The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities, including market risk, credit risk, counterparty risk, leverage risk and liquidity risk and can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives.
Securities of natural resource companies may be affected by events occurring in nature, inflationary pressures and international politics. Global infrastructure securities may be subject to regulation by various governmental authorities, such as rates charged to customers, operational or other mishaps, tariffs and changes in tax laws, regulatory policies and accounting standards. Foreign securities involve special risks, including currency fluctuation and lower liquidity. Futures Trading Is Volatile, Highly Leveraged and May Be Illiquid. Investments in commodity futures contracts and options on commodity futures contracts have a high degree of price variability and are subject to rapid and substantial price changes. Such investments could incur significant losses. The use of options on commodity futures contracts is to enhance risk-adjusted total returns. The use of options, however, may not provide any, or only partial, protection for market declines. The return performance of the commodity futures contracts may not parallel the performance of the commodities or indexes that serve as the basis for the options it buys or sells; this basis risk may reduce overall returns.
No representation or warranty is made as to the efficacy of any particular strategy or fund or the actual returns that may be achieved.
Cohen & Steers Capital Management, Inc. (Cohen & Steers) is a U.S. registered investment advisory firm that provides investment management services to corporate retirement, public and union retirement plans, endowments, foundations and mutual funds. Cohen & Steers U.S. registered open-end funds are distributed by Cohen & Steers Securities, LLC and are only available to U.S. residents. Cohen & Steers Asia Limited is authorized and regulated by the Securities and Futures Commission of Hong Kong (ALZ367). Cohen & Steers Japan Limited is a registered financial instruments operator (investment advisory and agency business and discretionary investment management business with the Financial Services Agency of Japan and the Kanto Local Finance Bureau No. 3157) and is a member of the Japan Investment Advisers Association. Cohen & Steers UK Limited is authorized and regulated by the Financial Conduct Authority (FRN458459). Cohen & Steers Ireland Limited is regulated by the Central Bank of Ireland (No.C188319). Cohen & Steers Singapore Limited is a private company limited by shares in the Republic of Singapore.