According to the report, “Real Assets, Inflation Protection Solutions with Exchange Traded Products,” stocks and bonds tend to generate meager returns during periods of rising inflation. When stocks are volatile and bonds offer historically low yields, investors may seek to generate positive returns by investing in assets that are potentially driving inflation, such as oil, or providing portfolio diversification during turbulent economic times, such as gold. “These real assets have historically outperformed stocks and bonds during periods of accelerating inflation and provided additional potential diversification benefits for investors seeking to control portfolio volatility, according to research and analysis,” the report said.
A blend of real assets has historically demonstrated the ability to provide significant inflation protection for suitable investors. According to the report, from 1970-2010, a portfolio of 20% inflation-protected bonds, 30% real estate investment trusts (REITs), 25% commodities, and 25% global natural resources stocks has resulted in significantly higher returns than stocks and bonds in periods of rising inflation. In periods of stable inflation, the blend of real assets offers comparable returns to bonds and commodities. In periods of declining inflation, the real assets blend significantly outperforms commodities.
The report contends real assets strategy can be easily implemented using exchange traded products, including exchange traded funds (ETFs) and exchange traded notes (ETNs).
A real assets blend could be implemented using ETFs as follows:
- 20% Inflation Protected Securities ETFs (TIPS),
- 30% REITs ETFs (15% US REITs, 15% non-US REITs),
- 25% Natural Resources/Energy ETFs, and
- 25% Commodity ETFs (15% broad-based commodity, 10% gold).
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