Real asset investment has become an increasingly integral part of the global economy in the past few decades. While evergreen investments like real estate and infrastructure have always attracted investors, real assets as an overarching asset class have seen a greater uptake by individual and institutional investors seeking diversification in the face of mounting market volatility and geopolitical instability. Those familiar with property investment and alternative investments should already be aware of the inflation-resistant benefits of adding real assets to your portfolio. For those who are less experienced (or need a bit of a refresher), this blog will break down the benefits of this high-growth investment with some help from the specialists at Concept Capital Group.
What is a Real Asset?
According to Investopedia, a real asset is a tangible investment distinct from others in its intrinsic value. This value is determined by its physical properties and substance, which allows real assets to stay resilient to the same market volatility that makes stocks and ETFs so risky.
As an asset class, real assets are classified as such because they have a tangible form with physical attributes. This contrasts with financial assets and intangible assets, the former of which does not have to maintain a strictly physical form and the latter of which lacks a physical form altogether. The three types are as follows:
Real Assets (Real estate, infrastructure, commodities, etc.)
- Value determined by physical properties
- Tangible – has a physical form, always needs one
- Can be exchanged for cash
- Low liquidity – slower and more time-consuming to sell
Financial Assets (Stocks, bonds, ETFs, etc.)
- Value determined by contractual rights or ownership claims
- Tangible – has a physical form, but does not always need one
- Can be exchanged for cash
- High liquidity – quick and easy to sell
Intangible Assets (Patents, copyrights, intellectual property, etc.)
- Provides value, but this value is difficult to quantify. In the absence of a strict value, these assets are valued based on the market, income generation or cost.
- Does not have a physical form in any context
- Can be exchanged for cash
- High liquidity – quick and easy to sell
Real assets are also unique in that they increase in value as replacement costs and operational efficiency rise. The longer you own one, the steadier and more lucrative your income stream becomes. This makes them ideal for a variety of long-term investment strategies, including diversification and inflation hedging.
How Real Assets Benefit Your Investment Strategy
1. They Excel at Portfolio Diversification
One of the most keenly desired strategies for modern investors that is diversification. With the growth in alternative investment opportunities, the scope for investors to diversify using real assets has also grown. According to a McKinsey study, real asset investment valuations increased by up to 28% between 2000 and 2020, signalling a significant growth in their economic power within the global marketplace. Similarly, real assets show a steadily growing track record of delivering inflation protection and stable income-based returns that have a low correlation with more equity-orientated portfolios, making them an increasingly relevant diversification option in today’s financial climate.
As investment management firm CBRE highlights, Europe especially has a high weighting of real assets, with a 21% allocation among various types of investors. As the promise of higher returns and lower volatility becomes more essential to our contemporary geopolitical and socioeconomic climate, CBRE predicts that European and global markets alike will rely more heavily on real assets for achieving diversification.
2. They’re Great for Inflation Hedging
A few weeks ago, fears of a U.S. stock market crash made experts speculate on a global recession. And, despite the UK exiting its recession in May this year, many are still struggling under an ongoing cost of living crisis. In lean and volatile economic climates, inflation hedging is a good way to ensure your portfolio remains consistently profitable.
According to a study on the potential of real assets to mitigate inflation risk, abrdn found that they have generally performed well, despite inflation-linked subtypes like real estate experiencing some losses. Real assets saw divergent performance across global markets, with valuations staying robust.
Morgan Stanley also advocates real assets as an option that typically increases in value alongside inflation, contractually or directly passing the increased rates and prices to consumers to keep investors profitable.
Historically, real asset investments have shown a consistent ability to weather poor economic climates and hedge against inflation. Research by professional services firm Schroders suggests that certain real asset types provide investors with real returns during several inflation types, with interest rates typically playing a minimal role in their long-term performance.
This inflation-resistant quality makes real assets more important during cycles of high inflation according to Goldman Sachs, with residential real estate even generating profits that can exceed the rate of inflation over the past two or three decades.
3. They’re Experiencing Unprecedented Growth
Overall, the past few years have seen many growth opportunities in real asset investment. A 2024 report on the global real asset investment market by Aviva Investors shows that 52% of global institutional investors hold up to 10% of their portfolios in real assets, while a third hold 10-20%. This investment firm attributes this widespread adoption to the strong demand for diversification and uncorrelated financial returns, long-term income, and positive ESG impact among institutional investors.
The same report reveals a growing demand for future real asset investment, with 64% of global investors expecting to increase their allocations in the next two years. Investors in the Asia-Pacific region especially were more likely to add real assets to their portfolios. Within the space, real estate equity remains the preferred strategy, with investors expecting returns to increase by 3.2% over the next year and 6.3% over the next five years. The highest returns on investment are anticipated from real assets that use emerging technologies, with 73% of investors believing that those that promote sustainability and decarbonisation will yield the best results for their portfolio.
With such overwhelming support for growing the real asset investment space among investors, it seems likely that the growth trajectory seen over the past few years will only continue to scale.
Real Asset Specialisation at Concept Capital Group
At Concept Capital Group, we specialise in alternative real asset investment opportunities specifically positioned to offer consistent and stable returns despite the overarching economic climate. Our modular housing investment packages provide a fixed monthly rental income that investors can rely on regardless of issues impacting the wider, traditional housing market.
For more information on our investment packages, book a call with our team today.
