Real Assets

Real assets differ from financial assets, such as shares and bonds, which represent claims on future cash flows. Real assets have intrinsic value from their physical nature and use.

Investors often value real assets for several reasons. Many provide steady income, such as rent from property or fees from infrastructure. Their values and income often rise with inflation, providing a hedge against rising prices. They can also diversify portfolios, because their returns often behave differently from shares and bonds.

For example, a pension fund might invest in a portfolio of toll roads, wind farms, farmland and logistics warehouses, earning income linked to inflation over many decades.

Real assets have drawbacks. Many are illiquid and expensive to buy and sell. They require active management and maintenance, and they are exposed to risks such as physical damage, regulation, climate change and changes in demand. Values are often based on appraisals rather than market prices.

Investors can access real assets directly or through funds, real estate investment trusts, listed infrastructure companies and commodity investments.