Real assets can give investors a strong diversifier when it comes to adding portfolio components that are uncorrelated with the broad equity markets. Investors can bundle diverse real assets in the convenience of an ETF wrapper via the VanEck Vectors® Real Asset Allocation ETF (RAAX).
Furthermore, the fund uses an active management style, cutting down on the guesswork of having to select individual real assets.
The fund’s primary goal is to seek long-term total return. In pursuing long-term total return, the Fund seeks to maximize real returns while seeking to reduce downside risk during sustained market declines by allocating primarily to exchange-traded products that provide exposure to real assets, which include commodities, real estate, natural resources, and infrastructure.
The Fund seeks to reduce downside risk by using a rules-based approach to determine when to allocate a portion of the Fund’s assets to cash and cash equivalents. Its expense ratio comes in at 0.75%.
Turning Down The Volatility Volume
One of the prime reasons to add real assets to a portfolio is to get uncorrelated exposure relative to the broad market. Real assets, given their illiquid nature, will be able to turn down the volatility when markets are swinging wildly.
“Private equity and real assets resist the volatility caused by increased market transactions as a means to rebalance and provide stability to multi-asset portfolios,” a Pensions & Investments article said. “It is one of the rudimental characteristics that define it from traditional assets, such as equities. Take the global financial crisis in 2008 and 2009 as an example, where an illustrative portfolio of private equity funds showed a contraction of distributions by 65%, while contributions decreased by 20% relative to predictions. This is a development to be expected during a market crisis, where valuations for all assets are collapsing.”
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