The Diversity of Real Assets: Portfolio Construction for Institutional Investors

PGIM Institutional Advisory & Solutions

June 2019

Is the combination of real assets in an institutional portfolio meeting the investor’s investment objectives? Investors may arbitrarily group real assets into a single category when constructing their portfolios.  However, real assets exhibit diverse features and macroeconomic sensitivities that should be carefully assessed during the portfolio construction process.

PGIM IAS examines the major real asset classes, both public and private, reviews their salient features, and measures their performance since 1996. IAS research highlights a wide diversity in macroeconomic and financial market sensitivities across both real asset classes and subsectors. These findings support a diversified portfolio approach to real asset investing.

Constructing portfolios that incorporate real assets can be complex.  IAS illustrates three real asset strategies – Diversification, Inflation-Protection and Stagnation-Protection – and shows how these strategies perform in different economic environments.  Investors should design portfolios based on specific investment objectives to help improve outcomes in those economic environments of concern, like stagflation and stagnation.

Real Asset Strategy Portfolios

Source: IAS. Provided for illustrative purposes only.

 

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