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. Real assets offer a historically attractive risk profile
Given the desynchronized payoffs of global real estate, listed infrastructure, natural resource equities and commodities, combining an array of real asset categories within a diversified framework has historically delivered competitive returns with significantly less volatility than global stocks.
Annualized nominal returns and standard deviation
May 1991-December 2023
2. Real assets have historically outperformed in inflationary environments
Despite inflation trending lower, ample catalysts for a resurgence in inflation warrant a permanent allocation in real assets, including 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 December 31, 2023. Source: Bloomberg, Cohen & Steers calculations.
Past performance is no guarantee of future results. The information presented above 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 above 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 asset 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 December 31, 2023. Source UBS, Bloomberg, Citi Research – US Equity Strategy, and 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
Secular drivers of inflation
Recent data indicates a slowing inflation trend, yet risks persist. Secular forces suggest that a prolonged elevated inflation period is underway with the potential for periodic price spikes. Factors driving long-term inflation include commodity underinvestment, tight labor markets, geopolitics, deglobalization and fiscal uncertainty. We see parallels to past inflationary eras, which highlight the difficulty of controlling inflation. While not predicting a return to 9%, the expectation is for a decade of higher-than-accustomed inflation, underscoring the importance of having a real assets allocation.
Opportunities in the era of scarcity
The world is transitioning from an era of commodity abundance to one of undersupply. We believe this shift may result in significant returns for commodities and resource producers over the next decade.
The Israel–Hamas war and the implications for real assets
Cohen & Steers is closely monitoring developments in the Middle East following the horrific terrorist attack on Israel. We offer a concise examination of the potential impact on real assets and the macroeconomic environment.
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.
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