This article was written by expert contributor, Wilson Asset Management
This is part 1 in a 4-part series on real assets and the investment opportunities.
Real opportunities in real assets
The word “real” is a broad term that has many different meanings, so it should perhaps come as no surprise that the term ‘real assets’ can also be defined in different ways by investors.
Our definition of real assets covers three main investment areas:
There is a finite volume or quantity of land for each of these areas, but they are all self-replenishing through naturally occurring cycles. As such we can consider them to be organic, non-finite natural resources (therefore excluding extractive industries such as mining).
These real assets all share some similar investment characteristics but also exhibit some key differences.
Why should investors consider real assets?
The key benefit of investing in real assets is diversification.
In most cases, returns from real asset strategies have a low or negative correlation to more traditional asset classes such as fixed income and equities. This means that real assets have the ability to deliver a positive investment return even at times when other asset classes are struggling.
Real assets have also proven resilient through different economic conditions and offer greater cash-generating potential than many other asset classes. They can produce an income return (typically linked to the annual crop, harvest, or productivity of the underlying asset) and the prospect of long-term capital appreciation.
Part of this capital appreciation has historically been linked to inflation, which brings us back to the definitions of the word “real” in the introduction.
Real assets have historically protected investors from inflation, by rising at a similar, or slightly higher pace than prices in the broader economy. This is why they can be considered “real” assets, as opposed to “nominal” assets such as many fixed interest securities, which cannot protect investors against inflation. At a time when many investors are becoming increasingly concerned about rising prices, the protective nature of real assets may be seen as a potential natural hedge against the risk of future inflation.
Part 2 – Real assets: Agriculture – grow your own performance
Part 3 – Real assets: Timber – seeing the wood for the trees
Part 4 – Real assets: Water rights -the ultimate liquid investment
Wilson Asset Management has a track record of making a difference for shareholders and the community for more than 20 years. As the investment manager for eight LICs – WAM Capital (ASX: WAM), WAM Leaders (ASX: WLE), WAM Global (ASX: WGB), WAM Microcap (ASX: WMI), WAM Alternative Assets (ASX: WMA), WAM Strategic Value (ASX: WAR), WAM Research (ASX: WAX) and WAM Active (ASX: WAA) – Wilson Asset Management invests over $5.4 billion on behalf of more than 120,000 retail investors.
Wilson Asset Management created and is the lead supporter of the first LICs to deliver both investment and social returns: Future Generation Australia (ASX: FGX) and Future Generation Global (ASX: FGG). Wilson Asset Management advocates and acts for retail investors, is a member of the global philanthropic Pledge 1% movement, is a significant funder of many Australian charities and provides all team members with $10,000 each year to donate to charities of their choice. All philanthropic investments are made by the Investment Manager.
Prior to making an investment decision, retail investors should seek advice from their financial adviser. This document is intended as general information only.