Investors plan to increase allocation to real estate and infrastructure

Just over three-quarters (76 per cent) of respondents expect to increase their allocation to real estate over the next 12 months, with 74 per cent for infrastructure, according to the survey of 200 UK wealth managers, financial advisers, discretionary fund managers, fund selectors and investment analysts. 

Time said this meant that they could benefit from macro conditions, which were looking more favourable for real assets in 2024, and discounts could continue to close for listed assets.

Time said the catalyst to increase allocation to real assets was driven by a number of factors the research found, including: a desire to de-risk portfolios through diversification (67.5 per cent); an increased focus on ESG (60.5 per cent); and a desire for secure income streams (44.5 per cent).

The research also showed that the majority (70 per cent) of advisers predicted a challenging economic climate and investment environment and did not expect conditions to improve for at least 12 months. 

Andrew Gill, co-fund manager of Time UK Infrastructure Income, said: “In the short term, we share the view of advisers that uncertainty and volatility is likely to persist. 

“However, we are seeing values stabilise in most real estate and infrastructure sectors and the reduction in bond yields seen in late 2023 should support this further.”

He added that, traditionally, reducing bond yields had been a catalyst for greater investor interest in real assets, making conditions more supportive for a return to growth.

Gill said: “We have also seen a significant change in market conditions and expectations, with UK inflation dropping materially. This could lead to earlier rates cuts than previously expected with forecasters, such as Capital Economics, moving forward their expectations for central bank rate cuts.

“The UK economy may escape a technical recession, but in the very near term, most economic forecasters are expecting slow economic growth.

"Our research findings highlight this could benefit some sectors with the majority (97 per cent) of investors thinking that the challenging economic climate favours investments in alternatives such as real assets, which may offer lower volatility and more stable returns.

“With economic growth likely to remain subdued, sectors with robust and growing cash flows, such as real estate and infrastructure, are likely to outperform over the long term. Growing cash flows should also continue to fuel income and dividend increases in most real asset sectors.”

ima.jacksonobot@ft.com