8 STATS MAKE THE CASE FOR REAL ASSETS IN A PORTFOLIO

Historically, real assets have been a niche asset class, included in the portfolios of sophisticated institutional investors, but often left out of a high-net-worth investor’s 60/40 portfolio.

In today’s market environment, however, the asset class deserves closer consideration by a broader set of investors. A confluence of factors including inflation concerns, low valuations and strong future demand make a compelling case for investing in the space.

This blog provides eight stats that make the case for investing in real assets:

4% The dividend yield on the MSCI ACWI Commodity Producers Index. In a world of low and negative interest rates, real asset businesses in the energy and materials are an excellent source of income returns. The dividend yield compares favorably not only to less risky areas of the fixed income market, but also to the broader stock market, where the dividend yield on the S&P 500 stands at 1.4%.

6% The annual rate at which energy and material companies have grown their purchasing power during high inflationary periods over the last century. This stat speaks to how real assets have historically served as an inflation hedge. For perspective, companies in the S&P 500 lost purchasing power by an annual rate of -1.5% over these same inflationary periods.

50 The number stands out in two ways: The ratio of asset prices between global commodity producers and the S&P 500 is 50% lower than its lowest point in the last 50 years. In an environment that some have called “the bull market of everything” real assets are a rare pocket where relative valuations are attractive.

700% Continuing from our stat above, real asset prices would need to outperform broader U.S. equities by this amount just to reach the long-term average between the two indexes.

62% The expected increase in electricity demand between now and 2050. Much of this electricity will be supplied by renewable energy sources, but what is often lost in that conversation is the demand for real assets to fuel this transition. For example:

10x The rate at which the nickel supply will need to increase to meet demand for storage systems to electrify the transportation industry. Similarly, the world will need to increase steel production to produce wind turbines, and ramp up the supply of lithium, copper and cobalt for electric vehicle batteries.

$1 trillion This represents the level at which U.S. infrastructure spending is below trend over the last decade. To catch up, infrastructure legislation may generate a government underwritten multi-year construction cycle.

90% The current capacity utilization of the U.S. cement industry. Given the potential demand from an infrastructure spending cycle, tight capacity could lead to upward price pressure … and estimates suggest that a 15% real price increase would double EBITDA for U.S. cement producers.

Given the demand trends underpinning real asset industries, the relative attractiveness of the space from a valuation standpoint, and the basic portfolio benefits such as inflation protection and yield, we believe the case for investing in real assets has never been more clear.

To learn more about real assets and our firm, we invite you to read our Q&A, which provides a short primer on the asset class and our unique approach toward it.