Property, infrastructure and farmland preserve their own value when inflation is high. But they cannot insulate an investor’s entire portfolio
A growing cohort is placing its faith in “real” assets—the physical sort, including property, infrastructure and farmland. Could these prove a haven in times of change? Investors certainly have good reasons to deem them safe places to perch. Inflation often coincides with rises in the prices of these assets. An economic expansion tends to fuel consumer-price growth as well as demand for floor space and transport or energy infrastructure.
As a result, real assets have done well during inflationary periods. A recent report by BlackRock, an asset manager, suggests that the total returns of privately held property and infrastructure assets globally have beaten those of main stock and bond indices when inflation has exceeded 2.5%. David Lebovitz of JPMorgan Asset Management reckons that a typical pension fund should start off by allocating 5-10% of its assets to them, with the share rising to 15-20% over time.
Another difficulty is that real assets are hard to access. They are typically private, meaning that only the most sophisticated investors have the resources and patience to find gems on their own. The rest might gain exposure in public markets, through real-estate investment trusts, infrastructure stocks or exchange-traded funds. But these tend to be closely correlated with equities, defeating the point of investing in them.
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