Rising inflation and economic risks continuing from Covid-19 make diversification even more imperative heading through the end of 2021 and into 2022—an opportune time for real asset exposure.
Real asset exposure can give portfolios uncorrelated assets that don’t march to the beat of the equities drum. This is especially the case when it comes to institutional investment strategies.
“We believe that real assets can play a long-term strategic role in the diversified portfolios of a wide range of institutional investors from defined benefit plans to endowments and foundations to defined contribution plans,” said Rob Guiliano, senior portfolio manager at State Street Global Advisors’ Investment Solutions Group.
“The issue today is that we’ve gone through an extended period of declining and low inflation where traditional asset classes have done extremely well,” Guiliano added. “The conversation we’re now having with clients is that expectations for equities and bonds have come down dramatically, while inflation could be structurally higher. So, what are the implications for your portfolio? Where is the potential return going to come from? We suggest looking to other assets and asset classes, particularly real assets, to help complement traditional equity and bond exposures.”
Multiple Real Assets, One Fund
There are a plethora of options when it comes to getting real asset exposure. However, an easier way is to allocate in a fund that does it all via the FlexShares Real Assets Allocation Index Fund (ASET)
ASET seeks investment results that correspond generally to the price and yield performance of the Northern Trust Real Assets Allocation IndexSM. The underlying index measures the performance of an optimized allocation to the underlying funds that is intended to provide exposures to certain real assets and minimize the overall volatility of an investment in the underlying funds.
As of November 19, the top three sector allocations include real estate, industrials, and utilities. Moreover, ASET takes a global approach by investing in countries outside of the United States as well, including Canada, the United Kingdom, and Japan—this provides even more diversification.
30% of the fund is currently allocated towards real estate where prices continue to rise as demand increases, but supply remains low. This should continue to provide gains for the fund moving forward; currently, the fund is up 14% for the year.
For more news, information, and strategy, visit the Multi-Asset Channel.