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How To Diversify Your Portfolio With Real Asset Investments

Real assets are anything that is a tangible resource with an intrinsic value tied to its use. This could include such items as real estate, infrastructure, industrial and precious metals, agricultural goods and other natural resources.

REAL ASSETS • IMPACT INVESTING • PRIVATE MARKETS

These assets can provide significant value to investors’ portfolios through increased diversification and lower risk given their underlying characteristics.

Benefits of an allocation to real assets in a portfolio include:

  • Inflation protection: Most real assets increase in market value and/or their earnings rise (either contractually or through regulatory allowance) as inflation increases.
  • Income: In many cases, real assets produce stable and strong cash flows which usually results in above average distributions (income) to investors.
  • Capital Appreciation: Both consistent income and growing cash flows can provide strong capital appreciation over time. During periods of higher inflation, capital appreciation is likely to exceed inflation providing strong benefits to a well-diversified portfolio.
  • Diversification: Given steady cash flows, some real assets can perform well during challenging market environments and are less correlated to broader equity markets.
 
Dynamic Allocation can exploit a range of potential benefits in real assets.
 
Benefits of Real Asset Investments

Asset Types

Infrastructure

Infrastructure is a large asset class with a variety of investments that have the following characteristics:

  • Essential or necessary product or service
  • Long useful lives
  • Monopoly/quasi-monopoly market position
  • Operate in regulated environments/or are less affected by economic cycles
  • Cash flow and earnings vary minimally in multiple environments
 

Sustainability: Citizen Mint believes investing in renewable energy infrastructure is a multi-decade opportunity. The majority of these investments will be in wind and solar projects which will be the greatest source of new power generation as noted in the chart below.

While previously expensive to build, the price for wind-generated energy has dropped 70% per megawatt hour (MWh) and 90% for solar over roughly the last decade, reducing the need for government subsidies while also accelerating plans of large electric utilities to switch from fossil fuels (oil and coal) to renewables.

Real Estate

Real estate is one of the most unique assets classes in the world given the distinctness of each property type. The four main property types for real estate include land, residential, commercial and industrial with numerous sub-categories for each. Characteristics of real estate properties include:

  • Distinctive: Properties have unique characteristics and no two properties are the same.
  • Location & Use: Real estate values are highly influenced by their location and ultimate use.
  • Scare: Land is a scarce resource.
  • Permanent: Real estate is a physical, permanent asset.

 

Examples of real estate include land, residential, commercial and industrial.

Commodities

Commodities are raw materials and agriculture products that are traded globally based on set prices given supply versus demand of the product. 

The six main categories for commodities are as follows:

Investments in Commodities

Sustainability: Commodities will be a necessary resource to reduce our carbon usage over time. As an example, electric vehicles (EVs) take significant copper, nickel, graphite and other metals to power our new transportation systems such as electric cars and buses.

Natural Resources

Natural Resources: Investments in natural resources encompasses opportunities that in most cases are land or water related. Ultimately, the value of natural resources is less standardized than commodities and is more dependent on how they are processed and marketed.

Examples of natural resources: timberland, farmland & grassland, fisheries.

Summary

We believe that the best opportunities are those that create positive societal or environmental outcomes as well as financial return. To read more about each of these opportunities as well as the benefits and drawbacks, download our free white paper.

This communication and the information contained in this article are provided for general informational purposes only and should neither be construed nor intended to be a recommendation to purchase, sell or hold any security or otherwise to be investment, tax, financial, accounting, legal, regulatory or compliance advice.

Citizen Mint believes real assets can be a great tool for investors to increase portfolio diversification, reduce risk and add growth opportunities to their portfolios.

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