In our view, investments in real assets—when properly diversified and skillfully managed—offer unique diversification benefits that can aid in managing many of the long-term risks associated with a traditional allocation to stocks and bonds.
Our real assets framework
Our research-based framework emphasizes three key criteria that should be considered in building a long-term, strategic allocation to real assets
1. Diversification: The potential to create a smoother ride for investors due to their distinct return profile compared to stocks and bonds
2. Capital appreciation: The potential to generate attractive total returns over full market or economic cycles
3. Inflation sensitivity: The potential to show higher sensitivity than stocks or bonds to unexpected inflation accelerations, which may help protect investors from environments that could be especially difficult for stocks and bonds
Why real assets can diversify a portfolio effectively
In the history of the financial markets, there have been many instances during which stocks and bonds have simultaneously underperformed their long-term averages.
For investors concentrated in stocks and bonds, we believe the potential for joint stock-bond underperformance presents heightened risks of lower overall portfolio returns, reduced ability to support spending from the portfolio, and possible failure to meet long-term investing goals. By contrast, periods of joint stock and bond underperformance have historically been supportive of real asset returns. We believe these results provide powerful support for the long-run diversification potential of a variety of real asset categories, with particularly strong indications in favor of a diversified real assets allocation.
The role of portfolio diversifiers
Our analysis shows that gold and a number of fixed-income categories can be used as portfolio diversiﬁers to potentially mitigate risk in a real assets portfolio.
Short-duration fixed income can provide a tool for investors to manage real asset portfolio volatility both strategically and tactically, since the core categories of real assets, on a stand-alone basis, have been historically more volatile than the global equity market.
Gold functions as a hedge against event risk and tends to perform well in periods of expansive monetary policy, economic dislocation and geopolitical instability. Gold has also shown a low historical correlation with other real asset categories.
Investment Rationale – Top Down and Bottom Up
It is our view that a rich, multifaceted risk framework that explicitly factors in the cross-correlations and risk contributions of both top-down and bottom-up insights is essential to this process. In our judgment, real assets should ultimately be approached as a single, coherent asset class, and ideally, managed under a shared umbrella (or within a single portfolio) that integrates all aspects of the investment process.
The views and opinions are subject to change without notice and represents an assessment of the market environment at a specific point in time, should not be relied upon as legal, investment or tax advice and is not intended to predict or depict performance of any investment. We consider the information to be accurate, but we do not represent that it is complete or should be relied upon as the sole source of suitability for investment. Investors should consult their own advisors with respect to their individual circumstances.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. There is no guarantee that a market forecast made in this commentary will be realized.
Cohen & Steers U.S. Registered open-end funds are distributed by Cohen & Steers Securities, LLC.
Please consider the investment objectives, risks, charges and expenses of any U.S. Registered open-end fund carefully before investing. A summary prospectus and prospectus containing this and other information may be obtained by calling 1-800-330-7348 or clicking here. Please read the prospectus carefully before investing.
Risks of Investing in Real Assets Securities
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. The strategy is subject to the risks associated with investments in real estate securities, commodities and natural resource equities, among other investments. The risks of investing in REITs are similar to those associated with direct investments in real estate securities. 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 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. 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. Because the 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. Please read the Fund’s prospectus for additional information.
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. 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.