Standard Life Investments, the global investment manager, highlights that investor interest in a range of real assets has been building for some time and that long-term investors are increasingly considering real assets to assist with enhancing portfolio diversification and liability matching.
In the latest edition of Global Perspective Standard Life Investments presents research that looks at the characteristics and prospects of the various assets that are categorised as real, such as inflation linked bonds, commodities, real estate or farmland, and assesses how well they meet investor expectations.
The report gives detailed consideration of sources of returns, duration, liquidity, whether the assets are readily available and quoted on markets or private and unlisted and whether the available instruments are bonds, equities or somewhere between. These factors influence the success or otherwise of real assets when it comes to providing effective diversification and generating a real return over inflation throughout the cycle.
Frances Hudson, Global Thematic Strategist, Standard Life Investments, said:
“Real assets are favoured for diversification potential, arising from a lack of correlation with other assets and with each other, and also for their inflation hedging properties, making them very powerful in portfolio construction. Significant changes are taking place that could broaden the appeal of real assets to global investors, including banks scaling down their exposure to real estate, infrastructure and commodities.
“In addition, the traditional division between bond-type real assets and those with equity-like characteristics is being blurred as new instruments are introduced and new avenues for investment are opened such as real estate debt funds and securitisation linked to infrastructure. While real assets are increasingly attracting attention, a careful and considered approach is essential in relation to the selection and location of assets.”
The report, entitled ‘Real Assets, Real Potential’ assesses the credentials of real assets for providing effective diversification and generating a real return over inflation throughout the cycle. It concludes that while they are not a panacea for investors – such investing is frictional, returns can be lumpy, entering and exiting positions long drawn out and asset valuations subject to significant moves – those investors with the expertise and patience to invest directly can reap significant and sustainable returns.