Note: This article is courtesy of Iris.xyz
By Marie Dzanis
WHY REAL ASSETS?
Disappointing global economic growth in the recent past has moved central banks to intervene with aggressive monetary policy, fueling the drive toward riskier asset classes. Inflation has been muted and traditional fixed income assets have not provided the yield necessary to meet short and long-term income needs. In response, an increasing number of investors are looking to other asset classes to serve as sources of income and to maintain purchasing power.
Institutional investors have long incorporated real asset classes such as commodities, real estate, agricultural land or oil into their portfolios. The potential advantages to these types of exposure are many, and include dampening inflation risk, improving portfolio efficiency, accessing stable bond-like yields and participating in equity-like capital appreciation.
Financial advisors and individual investors are now following this wisdom and adding real assets to their portfolios, aided by two major factors. First, investment vehicles such as exchange traded funds (ETFs) join a growing menu of mutual funds that can make real assets more readily available. Second, the range of investment strategies is continually expanding, offering asset owners’ maximum flexibility in addressing all their real asset needs.
However, the sheer magnitude of available options may be acting as a headwind, hindering investors’ adoption of real assets. Potential users are often discouraged because they are not sure which real asset strategies are most appropriate to meet their investment objectives. At FlexShares, we believe this conundrum presents an opportunity – because there is a simpler way to take advantage of the benefits of real assets.
THE RISE OF REAL ASSET INVESTING
First, some background on real asset investing. Prior to the late 1980s, many investment professionals believed the best way to mitigate portfolio risk was to diversify holdings among different asset classes, focusing primarily on stocks, bonds and cash. This approach, popularized by institutional money managers, ultimately led to the model 60% equity/ 40% fixed income portfolio.
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