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Real Assets Portfolios - Top Down Views from Amundi Research

The macroeconomic and financial environment as described by our research and portfolio management teams remains favorable to real assets:

  • Strong and resilient growth: growth around its potential in the United States, relative stabilisation in China, renewed strength in the eurozone (with a fall in the unemployment rate and a recovery in investment), improvement in global trade, emerging world still in progress with, in addition, Russia and Brazil emerging of recession...;
  • Monetary policies still accommodating, but which have begun to undergo changes, led by the United States and the euro zone (in other words, changes that should impact traditional assets);
  • Resurgences of inflation fears, albeit moderate, but which will undoubtedly restore interest in inflation-hedge vasset classes, as can be found in the world of real assets;
  • Moderate bond yields increases.

Beware however: under the term «real assets», one finds very different assets (sub-asset classes). When we refer to real and alternative assets, we often talk about real estate (which alone includes many sub-classes of assets), private equity, private debt, hedge funds, but also commodities, natural resources, hedge funds or even inflation-linked bonds. In other words, it is not a homogeneous block, which makes it all its richness. In a nutshell:

  • There are many classes and sub-classes of assets whose positioning differs over a different business cycle or an  inflation cycle;
  • The weak correlations between these subclasses underlines the need of considering them separately (in complementarity), and not as a block (in substitutability);
  • These weak correlations also encourage consideration of asset subclasses at different stages of the cycle, and not in a uniform way.

The table below gives an account of this reality (it presents, as an indication, the positioning of the different asset classes in “traditional” cycles):

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Other essential characteristics must be emphasised:

  • These assets help to circumvent the low interest rate environment;
  • They protect against inflation, particularly thanks to the recurrence of their cash flows and their indexation method;
  • They also allow to benefit from interesting correlations...;
  • The integration of real assets (real estate, private equity and private debt) in a diversified portfolio finally makes it possible to better live the crisis periods. According to our work, the benefits in terms of diversification and the capacity to capture liquidity premiums indeed improve the risk indicators of the portfolios (maximum drawdown, recovery time of drawdowns...).

Lastly, institutional investors are still under-invested. They are indeed well below their targets, and this is true for all asset classes, and especially for infrastructure. This under-investment can be explained in several ways:

  • Abundance of capital,
  • A lower rate of capital deployment than before,
  • The relative scarcity (offer vs. demand) of the deals,
  • High valuations in some major countries,
  • Countries near the end of the cycle,
  • The prospect (fear) of rising US rates,
  • Greater geopolitical risks.

But as regard investors, the trends remain intact. According to the most recent surveys (Preqin 2017), four real asset classes should be the subject of more ambitious investments in the coming years: private equity (48% of investors plan to allocate a larger portion of their portfolio in this asset class versus 6% who plan to reduce it), real estate (36% vs. 10%), infrastructure (53% vs. 11%), and finally - and especially - private debt (62% vs. 8%). The hedge fund asset class is the only one that seems to have been abandoned for the coming years (31% of investors expect divestments, while 15% plan to invest more).

ITHURBIDE Philippe , Global Head of Research
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Real Assets Portfolios - Top Down Views from Amundi Research
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