In the Absence of Inflation, Some Real Assets Are Down but Certainly Not Out
Real assets are often thought of as an inflation hedge, but their diversification benefits are a plus, too.
With an uncertain inflationary picture, the role of real assets’ in a diversified portfolio warrants a further look. These varied and idiosyncratic sectors can do more than simply hedge against inflation--they may also provide an additional facet to a multidimensional long-term-oriented portfolio.
What qualifies as a real asset?
There’s no standard definition for what qualifies as a real asset, but in general, these investments are linked to tangible holdings with intrinsic value. Over intense inflationary periods, inelastic demand from consumers for real assets--such as real estate, commodities, and infrastructure--means that those consumers absorb the subsequent price increases. For investors in real assets, these economic exposures are attractive because they damp the influence of inflation in a total portfolio. Besides directly owning a real asset, an investor might take a position in a company or stock that derives its value from real assets for some exposure, but in those cases, the addition of beta, or equity-market sensitivity, may detract from straightforward real asset characteristics.