Managed funds:

Physical assets can be a store of value in troubled times

In uncertain times the human nature is to grasp what is real, physical and enduring. There’s an importance in owning assets in our investment portfolios that are tangible, are a time-tested store of value and have utility in some form or another for humans. Yes, I am referring to real assets.

Real assets range from hard commodities such as precious metals to equipment, land, natural resources and bricks and mortar formations.

Real assets can be income producing such as tolled infrastructure (roads, ports, pipelines, crude and chemical storage terminals) and commercial property, or could just be a store of value such as gold and silver bars.

Recurring cash flows

These types of assets ought to be seriously considered for long-term investment portfolios as they can be a cushion against negative performance during economic recessions. Their cash flows come in demand during economic contractions, which provides a floor to real asset valuations.

A caveat here is that real assets are not encumbered with a costly debt profile, as lenders can call back the debt, forcing owners to sell in a down market. Thus, for opportunistic investors, recessions can also create opportunities to purchase real assets at attractive terms. Conversely, during inflationary times real assets can outperform financial assets as their revenues are often adjusted for inflation with increasing demand.

Rising inflows

It is for these reasons that real assets have become increasingly popular among the large institutional funds such as pension funds and sovereign wealth funds. According to a study by Willis Towers Watson of global pension assets, the total capital invested in real assets by institutions grew from $23 trillion in 2008 to almost double in 2016 at $43 trillion and, according to Brookfield Asset Management estimates, the invested total is expected to yet again double in the next five years to $80 trillion. So much capital moving into real assets over many years only vindicates the investible characteristics of real assets.

Thus, long-term investors may want to consider an allocation to real assets, for they are a relatively better preserve of value in tougher economic times while delivering steady positive real returns over the long term, which is every investor’s dream.

Max Riaz is an investment manager and director at Banyantree Investment Group, with responsibilities across equity and multi-asset strategies.

See banyantreeinvestmentgroup.com.