Invest in real assets

In an uncertain eco- nomic environment, infrastructure-linked assets can help stabilize income generation in a multi-asset class portfolio. High barriers to entry and the monopolistic positioning of many of these assets make them less cyclical. Furthermore, infrastructure assets sometimes operate on long-term contracts tied to inflation, providing a potential degree of inflation mitigation over the long term. Assets linked to digital connectivity, such as 5G, fiber networks, and data storage—as well as those linked to the energy transition, such as renewables, storage, and transmission—are a particular focus at present.

Investors can gain infrastructure exposure directly or indirectly. For individual investors, direct exposure to the cash- flows from utility, communication, or transportation assets can be attained via private market vehicles.

Indirect exposure can be attained via bond or equity markets. For example, in the US REIT sector, we like the exposure to communication towers and data centers. Greentech companies are exposed to infrastructure spending on the energy transition, decarbonization, and energy efficiency. We also have a most preferred stance on the global utilities and industrials sectors—both are indirect ways of investing in infrastructure and benefiting from increased infrastructure investment.

Concerns over a global economic slowdown have weighed on commodity prices. But we believe the structural case for further upside in energy, base metal, and agriculture prices remains intact. Our view is based on a robust economic recovery in China, a potential inflection point in the Fed’s rate hiking cycle, and several unresolved supply-side issues that should keep market balances tight. Tighter US financial conditions could also have the effect of reducing US shale supply. We maintain our most preferred stance on commodities and see total returns of close to 20% on the CMCI Index over the next 12 months. 

Like with infrastructure, investors can gain exposure to commodities both directly and indirectly. We currently prefer to take direct exposure. Downward-sloping curves offer roll gains, while higher yields have improved returns on cash collateral. Given the unique characteristics and drivers of individual commodities and structural commodity trends, actively managed strategies enable investors to potentially boost their returns relative to risk.

In direct real estate, we remain positively biased toward private equity real estate over the medium term, as rental indexation and reversion should support distribution yields. However, current market illiquidity means we hold a neutral view in the near term

In listed real estate, we have a neutral view globally. Refinancing costs continue to gradually inch up, and markets are still pricing in stock-specific losses in values. However, earnings visibility remains good despite uncertainties around values, dividend payments, and potential rights issues. Valuations are fair, in our view. An exception to this is Swiss-listed real estate funds, which we find attractive considering the severe price correction in 2022 and solid market fundamentals in Switzerland. In Asia, income-seeking investors can consider select Singapore REITs, given their relative resilience, sound fundamentals, and stable dividends.