The Diversity of Real Assets: Portfolio Construction for Institutional Investors

PGIM Institutional Advisory & Solutions

June 2019

Is the combination of real assets in investors’ portfolios meeting their 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’s IAS team developed the Real Asset Sensitivity Analysis (RASA) framework to help investors better understand the role of real assets in institutional investing. The RASA framework measures the macroeconomic and market sensitivities of different types of real assets and can be used by investors to identify specific combinations of real assets that may perform well in economic environments of concern.

Demonstrating how to apply the RASA framework, the team created three real asset strategies – DiversificationInflation-Protection, and Stagnation-Protection. Each strategy is designed for optimal performance in challenging economic environments and is comprised of distinct combinations of public and private real assets. All three strategies illustrate how real assets can be strategically combined to improve the performance of institutional portfolios.

Constructing portfolios that incorporate real assets can be complex. The RASA framework helps investors design portfolios based on specific investment objectives and to answer the question – “What is the role of real assets in my portfolio?”

Real Asset Strategy Portfolios

Source: IAS. Provided for illustrative purposes only.



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