Overcoming an ‘era of scarcity’: How investors are diversifying real assets

IMPORTANT: The capital market assumptions regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. The expectations and other information are for educational and illustrative purposes only. Hypothetical performance has inherent risks and limitations, and prospective investors should not place undue reliance on any such information. Because of Cohen & Steers’ investment focus on real assets, Cohen & Steers will benefit from increased interest in these asset classes, and you should keep this conflict in mind when evaluating the capital market assumptions. Other investments may have characteristics similar or superior to real assets. Additionally, Cohen & Steers may make investment decisions that are inconsistent with the capital market assumptions or any views expressed herein. Cohen & Steers may also develop and publish material that is independent of, and different than, the capital market assumptions or any views expressed herein.

The intent of the capital market assumptions is not to predict or project future returns of any investment, asset class or portfolio. Instead, the purpose of the capital market assumptions is to express Cohen & Steers’ view of expected general asset class returns of the period shown, which may be incorrect, potentially materially so, and are subject to change without notice.

By receiving this communication, you agree with and acknowledge the limitations of the capital market assumptions, the associated conflicts and the restrictions on use described herein.

The information presented is provided as educational and is not intended to be (and should not be) relied upon as a recommendation to invest in any specific security or asset class or to adopt any investment strategy, or as the primary basis for any investment decisions. Prior to making a decision to invest in any security or asset class, you should consult with your financial professional to determine whether the decision is appropriate for you. Return, yield and volatility expectations are based on Cohen & Steers’ analysis, are not a guarantee of future performance, and do not represent the past or projected performance of any fund, investor or other account managed by Cohen & Steers.

The assumptions used to form the basis for the information presented are as of the date shown and are subject to change. Expected returns are subject to many factors that are uncertain and outside the control of Cohen & Steers, and analysis may be subject to error. Expected outcomes depend on economic events, which (even if they occur) could result in outcomes that could be materially higher or lower than expected. The performance expectations displayed represent the midpoint possible expectations within a broader range of possible outcomes, some of which are negative. Actual outcomes could be materially lower than the central expectations.

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.

The information presented is not being provided in a fiduciary capacity and does not account for the age, other investments, financial situation, tax status, investment objectives, investment experience, investment time horizon, liquidity needs or risk tolerance of any investor. We believe the information to be accurate, but we do not represent that it is complete or should be relied upon as the sole source of appropriateness for determining any investment strategy. Cohen & Steers does not provide investment, tax or legal advice and will not advise you on your investment decisions. Investors should consult with their investment, tax or legal professional regarding their individual circumstances prior to making any investment decisions.

Criteria and methodology

Inputs to these expectations include return, volatility and correlation across asset classes. Assumptions are generally not updated on a real-time basis; therefore, results may vary with each use and over time. All such expectations are subject to change.

Expectations for returns are driven by a range of factors. Within fixed income, forecasts for interest rates are determined at various maturities based on economic growth, inflation, and policy expectations, as well as factors such as the shape of the yield curve, the expected level of real interest rates and inflation breakevens, and credit spreads. These interest rates are used to compute expectations for total returns, accounting for the starting point of bond yields, capital gain/loss based on assumption of benchmark duration, and yield.

For equities, including listed real assets, various factors contribute to total return expectations. Expectations are based on estimates for earnings growth and fair value multiples. Earnings growth expectations are driven by expected profitability and payout ratios, while valuation multiples are based on expected interest rates, risk premiums and growth rates. Changes in valuations are driven by forecasts of interest rates, risk premiums, growth and profitability. Dividend yield also contributes to total return.

For commodities, we forecast investable returns by coming up with expectations on index-level spot returns, roll returns and collateral returns. Spot returns are a function of inflation and expectations for supply/demand/inventory balances, roll returns are a function of the typical shape of the commodity futures curve, and collateral returns are a function of our forecast for short-term interest rates.

Certain inputs into the capital market assumptions have been obtained from sources that Cohen & Steers believes to be reliable as of the date presented; however, Cohen & Steers cannot guarantee the accuracy of such content, assure its completeness, or warrant that such information will not be changed. The content herein and inputs into the capital market assumptions are current as of the date of publication (or such earlier date as referenced herein) and are subject to change without notice. Cohen & Steers does not make any express or implied warranties or representations as to the inputs into the capital market assumptions or the completeness or accuracy of its results.

Risks of investing:

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. 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 may provide only partial, protection from market declines. The return performance of 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.

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. If a strategy invests significantly in natural resource companies, there is the risk that the strategy will perform poorly during a downturn in the natural resource sector..

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