Real assets can help you build portfolios that support your clients' income needs and long-term goals. They include things that your clients can see and touch, such as infrastructure and natural resources. Their value is tied to goods, services, and economic activity, not only to financial contracts.
In this article, Wealth Professional will discuss what real assets are, how they differ from financial assets, and other valuable insights. We will also cover some types of these assets that your clients might encounter. We've also listed the latest news at the bottom of the page, so feel free to scroll below. You can also click the last option on the list of contents above for easier access!
Real assets are physical or tangible assets that draw their value from use in the economy. They often produce cash flows tied to real activity, such as rent, tolls, or revenue from energy production. Here are some common examples of real assets:
Real assets can also sit inside public or private vehicles, but their underlying value comes from the physical assets themselves. Investors are often drawn to real assets for three reasons. These assets can:
You can listen to this podcast for more on real assets:
Here's why real assets should be part of portfolio diversification.
Real assets cover a wide range of investments. For a financial advisor in Canada, the most relevant types often appear through funds, managed accounts, or public securities.
Real estate is one of the most familiar real assets. It includes residential properties such as:
It can also include commercial properties such as:
There are also specialised segments like:
These assets can offer income through rent and potential value growth over time.
Some financial managers can offer real estate income funds that hold diversified portfolios of domestic properties. These vehicles often target stable income and long-term capital appreciation for investors.
Real estate returns usually come from rental income and changes in property values. Over long periods, property prices and rents often move in line with inflation or local income growth, although this link can vary by market and cycle.
Infrastructure assets support basic economic functions such as:
Infrastructure can also involve utility systems such as:
Many infrastructure assets operate under long-term contracts or regulated arrangements. These can result in relatively stable cash flows, sometimes with explicit inflation adjustment or volume-based pricing.
Your clients often access infrastructure through listed infrastructure funds or private pooled vehicles. Both routes can provide exposure to the same underlying economic assets, although liquidity and pricing behaviour will differ.
Natural resource assets can include:
These assets depend on the production and sale of physical commodities such as:
Commodities themselves are often discussed in the real asset context. They are physical goods whose prices feed into inflation, especially in areas such as energy and food.
Most investors can gain commodity exposure through financial instruments such as futures-based funds rather than direct physical holdings. In that case, the investment is a financial asset whose value responds to the price of the underlying real asset.
When you look beyond inflation, real assets can provide a number of upsides for investor portfolios. Here are six of them:
Real assets often respond to drivers that differ from public stocks and nominal bonds. Property depends on local supply and demand. Infrastructure reacts to regulation and usage. On the other hand, natural resources depend on commodity markets and production costs.
Because of these different drivers, some real asset categories have shown lower long-term correlations with traditional public markets. This can help smooth overall portfolio returns. It does not remove the risk of losses, but it can reduce the impact of a single market segment.
Many real assets are designed to produce steady cash flows:
These examples can all support your clients' spending needs.
Real assets provide exposure to real economic activity. For instance, a Canadian real estate fund might hold office, industrial, and multi-residential properties in major cities. A global infrastructure fund might own stakes in renewable power projects or transport networks that move goods and people.
Income levels will vary with:
It helps to frame real asset income as a support to overall cash flow. Treat it as a potential source of stability, not as a fixed promise.
For your clients, this link to real-world assets can make the investment story easier to understand. They can see how their capital supports tangible projects and services. This can build confidence beyond what they feel with purely financial instruments.
Real assets also come with specific risks. As a financial advisor, you can help your clients become aware of these challenges in advance and decide if the trade-offs are acceptable:
Many real assets, especially private funds that own property or infrastructure directly, have long holding periods and limited liquidity. Investors might only be able to redeem at set intervals. Withdrawals can also be restricted in stressed markets.
For some of your clients, illiquidity can align with long-term goals such as retirement income or intergenerational planning. Others might need greater flexibility for near-term spending or unexpected events.
For these clients, listed vehicles such as public REITs or infrastructure stocks might fit better. They still provide real asset exposure, but trade like other public securities.
Private real assets are not priced continuously on an exchange. They are often valued through:
This can smooth reported returns relative to public markets and delay how quickly market shifts appear in valuations.
Smoother valuations do not remove underlying risk. They only change how and when it is measured and reported. Helping your clients realize this can prevent false comfort during volatile periods.
Some real asset strategies concentrate on a single sector or region. Some can even focus on one theme. Examples include portfolios centered on:
Concentration can increase exposure to local downturns or policy changes.
Diversification across real asset types and managers can reduce some of the risk from concentration and local shocks. It cannot eliminate risks completely. Manager quality and fees are still vital when you evaluate options for your clients.
To find out the difference between these two assets, let's explore both. Starting with financial assets, these are claims on future cash flows issued by another entity. Their value comes from contractual rights rather than direct ownership of a physical asset. Common financial assets include:
On the other hand, real assets are physical assets used to produce goods or services or to provide access and capacity. Their returns often come from a mix of income and value changes that reflect inflation, demand, and real activity.
You can explain the link this way: A financial asset is usually a paper or digital claim, such as a real estate investment trust (REIT) unit. A real asset is the underlying office building or apartment complex that generates the income.
Financial assets and real assets work together in portfolios. Financial assets support liquidity needs and price discovery while real assets add exposure to physical capacity and real income streams.
Both real assets and financial assets have advantages and disadvantages. To get the best of both worlds, try building a good asset mix that includes both assets in your clients' portfolios.
Real assets connect portfolios to the physical side of the economy. For your clients, they can provide exposure to property, infrastructure, and natural resources that support daily life and long-term growth.
As mentioned above, real assets differ from financial assets because they are tangible. Plus, they often deliver income and value changes that respond to inflation and demand. When used wisely, real assets can provide added income when paired with traditional stocks and bonds.
For a financial advisor, the opportunity lies in understanding real assets well enough to explain them in a straightforward language. When you match them to suitable client profiles and integrate them into balanced portfolios, real assets can help your clients pursue stable income.
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