Investing in Real Assets
Investing in real assets is a great way to diversify a portfolio. They are historically low-correlated with equities and bonds, and offer investors more diversification, as well as improved risk-adjusted returns. Besides, they may be better suited to a wide variety of investor needs.
Financial assets are more volatile than real assets, and they are also less liquid. Real assets are typically more location-based than financial ones. This makes them less liquid and harder to trade. They also have a higher cost of storage and transaction fees. However, they represent a better hedge against inflation than financial assets.
Real assets are assets that have intrinsic value, such as commodities, land, buildings, and infrastructure. They can generate good returns and provide a hedge against inflation. Their low correlation with financial assets also makes them a good choice for a diversified portfolio, particularly in times of inflation. Although real assets are less liquid than financial ones, they can still provide a good return.
Financial assets can be categorized into three major categories, including stocks, bonds, and bank deposits. Most companies hold a mix of both types of assets. For example, a company might own a factory, land, and building, as well as financial assets such as stocks and bonds. This mix of assets helps companies hedge against market risks, while real assets offer more stability and less liquidity.
Financial assets are often backed by real assets, which can make the distinction between real and financial assets even more blurred. Financial assets can be backed by real assets, though the underlying physical assets may not. Similarly, financial assets that invest in real assets are still regarded as financial assets. Although the two types of assets are largely separate, they have a significant overlap.
Real assets are tangible assets, which can be measured in the market. Financial assets can be more difficult to measure, however. They include intangible assets, such as intellectual capital, and are typically included in the long-term assets section of a company’s balance sheet. Another category of real assets is intellectual capital, which is not directly measured but is often represented as a real asset. However, software applications delivered over the internet or mobile apps are less dependent on real assets than do their real counterparts.
Real assets include land, buildings, and other assets that are used for production. The productivity of real assets is the key to creating wealth. In addition to their utility in the production process, real assets offer reasonable inflation protection. Real assets, including land, buildings, and other resources, are categorized into three main categories.
While financial assets are often the focus of investment managers, real assets can provide an excellent way to diversify a portfolio. State Street’s team concentrates on the largest liquid real assets and combines them with a diverse portfolio of indexed exposures. This diversification allows for a more flexible portfolio of real assets.