Real Assets

Brookfield Real Assets Monthly: Looking Below the Surface of January's Selloff

Article

Feb 10, 2022

Stocks got off to a rough start in 2022, but a look below the surface of January’s selloff offers the latest evidence that listed real assets can offer downside protection.

Investor concerns about Federal Reserve tightening, rising inflation, geopolitical tensions and an uneven earnings season sent markets on wild swings throughout the month. The S&P 500 finished January down nearly 5.2%, its biggest monthly drop since the onset of the pandemic in March 2020, while the VIX “fear gauge” spiked and technology stocks bore the brunt of the selloff.

Listed real assets held up relatively well, in contrast. The chart below shows the performance of listed real assets, the S&P 500, and the top and bottom two S&P 500 sectors from technology stocks’ December peak to their January trough. Technology shares fell roughly 15% during that period, while listed real estate only fell 5%, infrastructure stocks lost just under 3%, and midstream energy infrastructure equities rose nearly 8%.

Listed real assets held up as tech stocks sold off chart

That listed real assets held up relatively well isn’t unique to this most recent downturn. During the 19 one-quarter periods between January 1, 2003 and December 31, 2021 when equity returns fell, as measured by the MSCI World Index, we find that listed real assets generally declined less, outperforming the broader equity market.

One reason for this downside protection: the defensive characteristics of real asset cash flows, which tend to be regulated, contracted and protected by high barriers to entry.

The market swings we saw in January may persist. Our base case for 2022 is slowing but above-trend growth, moderating but above-trend inflation and higher real rates—a backdrop that should support real assets, albeit with more muted return potential and more elevated volatility than in 2021. As the recent selloff shows us, we believe listed real assets can provide some downside protection in the event of any bumps ahead. Read more by downloading the full Real Assets Monthly.

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This material is not, and is not intended as investment advice, an indication of trading intent or holdings or the prediction of investment performance. All information is current as of the date of this material. Views and information expressed herein are subject to change at any time. Brookfield Public Securities Group LLC disclaims any responsibility to update such views and/or information. This information is deemed to be from reliable sources however, Brookfield Public Securities Group LLC does not warrant its completeness or accuracy. This presentation is not intended to, and does not constitute an offer or solicitation to sell or a solicitation of an offer to buy any security, product, investment advice or service (nor shall any security, product, investment advice or service be offered or sold) in any jurisdiction in which Brookfield Public Securities Group LLC is not licensed to conduct business, and/or an offer, solicitation, purchase or sale would be unavailable or unlawful. Indexes are unmanaged and are not available for direct investment. Investing entails risks, including possible loss of principal. Past performance is no guarantee of future results.