Global population growth and increased consumption means the need for investment in resource stability is expanding on a daily basis. As such, financial advisors can no longer afford to ignore real assets.
“Advisors have often been concerned about the performance of real assets in a lowinflation, low-commodity price environment,” says Michael Underhill, chief investment officer of Capital Investments, which serves as a subadvisor on Sprott Asset Management
’s real asset funds.
“Short-term performance of real assets can be depressed in such an environment, but the bigger picture remains global population growth and natural resource consumption in the long-term.”
This alternative asset class often includes investments in infrastructure and real estate, and can also include commodities such as timber, agriculture, precious metals and natural resources.
“Interest has been increasing among investors in recent years to expand from the traditional asset classes to construct a more diverse portfolio,” Underhill says. “Real assets provide a broader diversification beyond traditional equity and fixed-income allocations with historically low correlation to stocks and bonds.”
“Gold, for instance, has a long history of being an uncorrelated asset, and its benefit as a portfolio diversifier is highlighted in today’s low-interest-rate environment,” adds Paul Wong, senior portfolio manager of the Sprott Gold and Precious Minerals Fund. “As more central banks begin to adopt negative interest rate policies, gold becomes more attractive as the ultimate store of value.”
Underhill points to commodity-influenced equities as strong performers in the current marketplace.
“Recent company balance sheet restructuring through non-core asset sales and reductions in capital expenditures, coupled with the recent rally, have provided companies with stronger commodity pricing and greater cash flows, and further strengthened their balance sheets,” he says.