Talking Point  

Advisers expect diversification into real assets to continue

Advisers expect diversification into real assets to continue

More than a third (36 per cent) of advised clients are investing in real assets with a number expecting diversification into real assets to continue over the next 12 months, according to a study by Time Investments.

The new research was conducted with independent financial advisers and wealth managers 

Real assets are defined as a physical or tangible asset, such as, real estate, infrastructure, gold or oil, that has value due to its substance and properties. 

The study also found that one fifth (21 per cent) of advisers questioned cited an increase in real asset investing compared to 12 months ago, with just 6 per cent seeing a decrease.

The research also indicates that advisers expect diversification into real assets to continue over the next 12 months with 44 per cent predicting an increase in investments in the asset class. 

The primary driver for this is the desire to de-risk portfolios (53 per cent), followed by the need to reduce volatility (18 per cent) and to provide secure income streams (15 per cent).

When it comes to real asset investments, 64 per cent of advisers said that clients who want to accumulate wealth should consider the asset class, followed by cautious investors (34 per cent), those that require income drawdown (32 per cent), and investors who are retired (26 per cent) or are approaching retirement (23 per cent).

For clients with exposure to real assets, advisers are recommending that 25 per cent of the portfolio should be invested in real assets in the current economic climate.

Henny Dovland senior business development manager at Time Investments comments: “More advisers and their clients are turning to real assets such as property and infrastructure as a significant part of their investment portfolios to help counterbalance the risk as a result of continuing economic and political volatility. 

“These investments are usually lower risk and volatility, providing more secure income streams which is particularly important for those approaching or in retirement.”

A recent report from Janus Henderson also said that alternatives have grown in popularity as investors question how much more traditional asset classes have to give. 

Alternative assets typically provide access to investments that have a low correlation to traditional stocks and bonds, and include asset classes such as real assets, listed infrastructure, commodities, real estate investment trusts (Reits) and private equity, as described by Russell Investments.

Paul Flood, portfolio manager of the BNY Mellon Multi-Asset Income Fund and Multi-asset Portfolio Manager at Newton Investment Management, said: “Looking ahead, we expect...renewables and other real assets to deliver attractive and stable returns through what we believe will be a volatile backdrop for equities and anaemic returns for bond markets on a longer term basis.”

Sheridan Admans, investment manager of the TC Share Centre Multi Manager Funds added: “We are increasingly finding opportunities in real assets; historically, real assets tend to perform well in late-cycle environments.

"Real assets could provide an effective hedge against rising inflation, support portfolio diversification and currently generate higher cash returns over investment grade income.