Real Assets: Real Estate, Commodities, and Infrastructure
Real assets — assets with intrinsic physical value — have historically provided portfolio diversification through their imperfect correlation with traditional stocks and bonds, as well as inflation protection. Real estate (REITs): publicly traded REITs provide equity-like returns with partial real asset exposure. REITs are required to distribute 90%+ of taxable income as dividends, making them high-yield instruments. Long-term REIT returns approximate equity returns, with partial correlation to bond markets (interest rate sensitivity due to leverage). Direct real estate: rental properties provide income, leverage, and depreciation tax benefits, but require active management and involve illiquidity. Commodities: physical goods (gold, oil, agricultural products, industrial metals) have returns driven by supply-demand dynamics independent of corporate earnings. Gold specifically has a near-zero or slightly negative long-term real return but performs as a crisis hedge — it tends to retain or gain value during equity crashes and geopolitical uncertainty. Broad commodity indices have positive correlation with unexpected inflation, making them useful inflation hedges. Infrastructure: airports, toll roads, utilities, pipelines — regulated, long-life assets with contractual inflation escalators. Infrastructure returns are less volatile than equity, have low correlation with stocks, and provide inflation protection through escalation clauses. Typically accessed through infrastructure funds or ETFs rather than direct investment.