Long-term investors are attracted by prospective real returns and the enhanced diversification associated with real assets. The assets in question range from inflation-linked bonds to infrastructure to commodities to timberland and farmland. A diverse mix of attributes includes relatively stable and historically robust absolute returns, bond-like income streams, and the potential for capturing equity upside with lower volatility and global exposure.
Real assets find favor based on their diversification potential; historic correlation with mainstream assets and with each other has been low. Overall, their track record in terms of generating inflation-adjusted returns is also impressive. However, especially in today’s low inflation environment, investors may need to exhibit considerable patience in order to benefit. In addition, the global markets for real assets are opening up and developing in ways that should broaden their appeal further.