While individuals remain content riding the stock juggernaut, forward-looking sophisticated investors are increasingly boosting allocations to real assets. This is understandable, as we see numerous positive drivers for these assets in 2019 and beyond.
We believe that one reason for the increased appetite for real assets is inflation. With the last decade characterized by low inflation, many investors are complacent in relation to inflation risks. In an environment where inflation surprisingly accelerates to the upside, stock and bond markets both typically struggle, meaning investors could lose the portfolio diversification benefits.
Valuation is another driver, as many of these assets have only partially participated in the risk-on rally experienced over the past decade. Unlike historically elevated valuations for equities and the still-low bond yields, real assets continue to display solid upside potential.