Risk and Volitility

The Real Deal: Global Real Assets

We explore the characteristics of global real assets—an asset class that often performs differently than traditional investments under the same market conditions.

Contents:
  1. The Case for Real Assets
  2. Inflation Can Erode Savings
  3. Enhanced Portfolio Diversification
  4. Strategic Exposure in Portfolios

Real assets have found a place in the strategic asset allocation mix of most institutional investors and can play multiple roles in a diversified portfolio including total return potential, inflation protection and lower correlations to traditional equity and fixed income.

The Case for Real Assets

Most portfolios have two broad objectives: income and growth. Bonds have traditionally been used to generate portfolio income, while equities are often employed to achieve growth. In our view, real assets should complement a portfolio’s growth and income allocations because of added benefits of inflation protection and lower market correlations.

Adding real assets requires a well-defined investment objective, as well as a clear plan for implementation, including the size of the real assets allocation within the overall portfolio, the mix of real assets exposures, and the vehicles by which these exposures will be delivered. Whether a real assets allocation is attained through direct exposures or through a listed real assets portfolio, skilled portfolio allocation capabilities are required to maintain portfolio objectives and react to changing market regimes over time.

Key Categories:
  • Energy
  • Metals & Mining
  • Agribusiness
  • Infrastructure
  • Timber & Forestry
  • Real Estate

Figure 1

Even Small Inflation Erodes Savings

Real assets present unique investment opportunities with higher potential liquidity and better diversification while seeking to protect portfolios against inflation. As an asset class, it has also shown the ability to outperform periods of higher inflation. As even low to moderate inflation can dramatically impact purchasing power over time (Figure 2). Real assets have the potential to be an effective hedge and an important component of a portfolio’s risk profile.

Figure 2

Strategic Exposure in Portfolios

Although return levels vary greatly by year, a balanced approach across multiple sub-sectors has historically offered positive risk adjusted benefits in a broad portfolio.

Sectors like real estate and infrastructure have delivered steady cash flow and others, such as commodities, offer exposure to economic global growth and development in emerging markets.

Figure (2) shows investment objectives to consider when allocating towards global real assets.

Figure 3

Next Steps

Consider a potential 5-10% allocation to global real assets depending on risk tolerance as part of a diversified portfolio.

To learn more, please contact us at North Square Investment for more helpful insights on the asset class.


Important Risks: Equity securities, such as common stocks, are subject to market, economic and business risks that may cause their prices to fluctuate. Investments made in small capitalization companies may be more volatile and less liquid due to limited resources or product lines and more sensitive to economic factors. The Fund may invest in foreign securities which involves certain risks such as currency volatility, political and social instability and reduced market liquidity. Emerging markets may be more volatile and less liquid than more developed markets and therefore may involve greater risks. The Fund may invest in ETFs (Exchange-Traded Funds) and is therefore subject to the same risks as the underlying securities in which the ETF invests as well as entails higher expenses than if invested into the underlying ETF directly.

Before investing, consider the product’s investment objectives, risks, charges and expenses. This and other information is in the prospectus, a copy of which may be obtained by calling 855-551-5521. Please read the prospectus carefully before you invest. Distributed by IMST Distributors, LLC.

The S&P 500 measures the broad performance U.S. large cap stocks. The Bloomberg Barclays US Aggregate Bond measures the broad performance of U.S. investment grade, fixed rate bond market. The S&P Global Natural Resources measures the largest 90 companies in natural resources and commodities businesses. The S&P Global Infrastructure measures the performance of companies around the world focused on the listed infrastructure industry. The Alerian MLP measures the performance of energy master limited partnerships. The Bloomberg Barclays Inflation Linked US TIPS measures the performance of the US Treasury Inflation Protected Securities (TIPS) market.

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