Investors interested in diversifying a traditional portfolio mix with an alternative asset can look to a new ETF approach that provides exposure to real asset segments with positive expected returns while managing overall portfolio risk.
On the recent webcast, Real Asset Investing for the Real World, Roland Morris, Portfolio Manager and Strategist of Commodities for VanEck, explained that real assets include categories like commodities, natural resource equities, MLPs, REITs and infrastructure.
“An allocation to real assets can play three key roles in a portfolio: As a hedge to inflationary pressure. As a leverage to global growth. As a portfolio diversifier,” Morris said.
These real assets can help provide many portfolio benefits, such as low correlation to financial assets, outperformance in a rising rate environment, leveraged exposure to commodities, sensitivity to global growth and inflation, store value, provide safe-haven exposure, inflation protection and total return potential.
A diversified approach that includes these alternative assets can help minimize overall portfolio drawdowns with less volatility, compared to the S&P 500. For example, in the period 1975 through 2017, commodity futures experienced an average decline of 10% to 20% a total of 6 times with an average length of 49 days. In comparison, U.S. equities experienced a decline of 10% to 20% a total of 9 times with an average of 163 days.