Real assets have less exposure to tariffs relative to many other asset classes, generally predictable earnings, and are well positioned in a new market cycle.
Market volatility has spiked, markets had a two-day rout that pushed equities into bear market territory and spared almost no asset class. Concerns about slowing growth are climbing, and investors are wondering what’s next as tariffs take hold globally.
We encourage investors to take a long-term view and recognize the benefits of portfolio diversification, particularly, amid this uncertainty, volatility, and a reassessment of growth prospects.
Specifically regarding tariffs, we believe listed real assets (real estate, infrastructure, commodities and natural resource equities) are less likely to feel the brunt of the negative impact. This was the case in the first Trump presidency when listed real assets outperformed equities substantially from 2018 to 2020 when tariffs took hold, though the current escalation in tariffs is much more substantive.
First, real assets tend to generate predictable revenues and high dividend yields due to longer-term leases or contracts. Those less volatile earnings streams have provided strong returns historically but can be particularly attractive in times of market uncertainty.
Second, most real assets have much lower direct exposure to tariffs than many other asset classes. They generally are not exporters or major importers.
Further, real assets are benefiting from strong secular themes that we believe will keep their momentum almost regardless of tariff pressures.
Third, as we discuss in our just-published, Capital Market Assumptions, which outline return expectations for stocks, bonds, and real assets for the next 10 years, the starting point for valuations for real assets is relatively attractive.
Finally, real assets have also historically outperformed in inflationary environments, particularly when inflation surprises to the upside. Tariffs will significantly contribute to deglobalization, geopolitical friction, and more elevated commodity prices, each of which is inflationary, though the long-term impact of tariffs still remains uncertain.
A closer look at listed real estate and infrastructure
Listed real estate is a good example of these characteristics.
REITs’ strong historic performance has been underpinned by REITs’ stable business models, which focus on acquiring and developing high-quality assets that generate recurring income tied to leases. That is a very different business than importing or exporting goods, which is subject to tariffs.
Secular shifts unlikely to be abated by tariffs are also driving favorable pricing power for a number of sectors. Data center demand is rising given the accelerated needs of cloud computing, 5G and artificial intelligence. Demographics are driving demand for senior housing (aging baby boomers) and for single-family rental properties (millennials).
However, tariffs may have a greater impact on certain real estate subsectors. In hotels, consumer weakness could be a headwind, as demand may taper if economic growth slows. In malls, retailer tenants could see costs increase substantially, pressuring their margins. And builders may suffer from higher lumber prices. Such sector dispersion is a key reason why we believe active management matters.
Listed real estate has historically performed well in inflationary environments. Among other factors, higher costs for land, materials and labor can reduce the potential profits of development, raising the economic barriers to new supply and reducing potential competition for existing properties.
REITs are also currently trading at deep discounts relative to traditional equities and historically have outperformed equities following such periods. They have historically traded at a premium to equities. This put listed real estate at a much better starting point heading into the current market uncertainty accelerated by tariffs.
We believe the remainder of the core four of real assets – infrastructure, commodities and natural resource equities—have similar attributes that make them particularly attractive today, though we also believe real assets should be a permanent allocation for most investors.
Listed infrastructure is another good example. While some sectors within infrastructure are sensitive to trade and global demand, predictable revenue streams driven by long-term contracts tend to make this asset class a bit more defensive than broad equities. Infrastructure companies also have the ability to pass through higher costs to end customers based on their revenue models.
Similar to listed real estate, listed infrastructure is currently trading at a discount to global equities, compared with a historical average premium. Secular trends—including digitalization of the world’s economies, higher power demand, decarbonization and deglobalization—are accelerating infrastructure spending.
Market volatility shows diversification matters
We also reiterate that we are in a new market cycle—one vastly different than the previous period of ultra-low rates, relatively low economic volatility, and high stock returns, though besides treasuries, few assets were spared in the recent market selloff.
Stickier inflation, lower expectations for equity returns, normalized rates, slowing growth, and more economic volatility are the hallmarks of this new cycle. The market’s response to the escalation of new tariffs further cements this regime shift.
Against the current backdrop, the diversification value of real assets seems particularly compelling. Equities, the winners of the last market cycle, have borne the brunt of the market’s recent volatility.
For reference, we encourage clients to read the recent insight we published “FOMO, reversals of fortune and the opportunity in real assets”. We believe too many investors are under-allocated to what we believe will be next cycle’s winners, including real assets, while holding onto last cycle’s winners.
Last year, U.S. equities posted total returns greater than 25% for the second year in a row. Through the first quarter of 2025, the S&P 500 declined 4.3% then dropped 4.8% April 3, the day after the most recent large-scale tariffs were announced. Until the recent selloffs, equity valuations had risen to levels last seen near the turn of the millennium.
By comparison, listed real assets categories are all either neutrally or attractively valued, as they repriced early to the new market regime. Other asset classes, including equities and some private assets, have yet to catch up.
Real assets, as measured by an index blend comprising listed real estate, natural resource equities, commodities and infrastructure, returned nearly 6.1% in the first quarter. That’s more than a 10-percentage-point difference over the S&P 500 in 1Q25. On April 3, the real assets blended index declined 1.7% compared to the 4.8% drop in the S&P 500.
Meanwhile, stock and bond returns have become increasingly correlated, which means that stock-bond portfolios offer less diversification than investors have come to expect.
Our conclusion? Investors are in a new world, diversification matters again, and real assets may be the best place to find it.
FURTHER READING
Capital Market Assumptions
Expected returns for the next 10 years amid elevated inflation and resilient global growth
Investors may be missing next cycle’s winners because of FOMO
Investors sticking with yesterday’s winners risk missing a reversal of fortunes.
3 Reasons to own real assets today
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.
Index definitions and important disclosures
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..
Data quoted represents past performance, which is no guarantee of future results. There is no guarantee that any historical trend illustrated/referenced above will be repeated in the future, and there is no way to predict precisely when such a trend might begin. There is no guarantee that any market forecast set forth in this commentary will be realized. The views and opinions in the preceding commentary are as of the date of publication and are subject to change.
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. The views and opinions expressed are not necessarily those of any broker/dealer or its affiliates. Nothing discussed or suggested should be construed as permission to supersede or circumvent any broker/dealer policies, procedures, rules or guidelines.
Performance for the real assets benchmark consists of 30% FTSE EPRA/NAREIT Developed Index (Net) 30% DJ UBS Commodity Index 20% S&P Global Natural Resources Index (Net) 7.5% Gold Spot Price 12.5% BAML Global Broad Market Corporate 1-3 years through 09/30/2013 and 27.5% FTSE EPRA/NAREIT Developed Index (Net) 27.5% DJ UBS Commodity Index 15% S&P Global Natural Resources Index (Net) 15% DJ Brookfield Infrastructure Index 5% Gold Spot Price 10% BAML 1-3 year U.S. Corporate Index following.
Risks of investing in real estate securities: The risks of investing in real estate securities are similar to those associated with direct investments in real estate, including falling property values due to increasing vacancies or declining rents resulting from economic, legal, political or technological developments, lack of liquidity, limited diversification and sensitivity to certain economic factors such as interest rate changes and market recessions.
Risks of investing in global infrastructure securities: Investments in global infrastructure securities will likely be more susceptible to adverse economic or regulatory occurrences affecting global infrastructure companies than an investment that is not primarily invested in global infrastructure companies. Infrastructure issuers may be subject to regulation by various governmental authorities and may also be affected by governmental regulation of rates charged to customers, operational or other mishaps, tariffs, and changes in tax laws, regulatory policies, and accounting standards.
Risks of investing in foreign securities: Foreign securities involve special risks, including currency fluctuations, lower liquidity, political and economic uncertainties and differences in accounting standards. Some international securities may represent small- and medium-sized companies, which may be more susceptible to price volatility and less liquidity than larger companies.
Risks of investing in commodities: An investment in commodity-linked derivative instruments may be subject to greater volatility than investments in traditional securities, particularly if the instruments involve leverage. 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. Among the risks presented are market risk, credit risk, counterparty risk, leverage risk and liquidity risk. The use of derivatives 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.
Futures trading is volatile and highly leveraged, and it 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. There can be no assurance that the options strategy will be successful. 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.
Risks of investing in natural resource equities: The market value of securities of natural resource companies may be affected by numerous factors, including events occurring in nature, inflationary pressures and international politics.
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