Real Assets

Three Reasons Real Asset Equities May Have Room to Run

White Paper

Jul 15, 2021

Real Assets Quarterly: Three Reasons Real Asset Equities May Have Room to Run

Real asset equities have performed well this year, recovering to their pre-pandemic levels. Yet we believe real assets have more room to run in the second half of 2021 for these three reasons.

Relative Valuations. Although real asset equities have recovered to their pre-pandemic levels, broad global equities are 24% above pre-pandemic levels. Real asset investors may be taking a “wait and see” approach before rewarding mobility-sensitive real estate and infrastructure, leaving room, we think, for real assets to close the gap with broad equities.

A Divergent Growth Recovery. Most regions are now in expansion territory. However, the pace of recovery differs greatly across countries and is heavily dependent on varying local vaccination levels, reopening progress, and financial support from local governments. Different sectors and industries across real asset equities are also recovering at different rates, with many of those hardest-hit by social distancing—such as office properties and airports—still underperforming. We believe this divergent recovery is creating opportunities, with real asset equities in slower-to-recover regions and industries poised for stronger relative returns as vaccinations—and related recoveries—become more widespread globally.

An Inflationary Backdrop. Regardless of whether today’s rising inflation is transitory or sustained, it is good news for real asset equities, in our view. Our research shows that in periods of higher-than-expected inflation over the last two decades, global real estate and infrastructure equities have historically outperformed global equities. We largely attribute this outperformance to the inflation participation, via periodic price escalators linked to inflation, built into many real estate and infrastructure contracts.

Bottom Line: We believe real asset equities can move higher from here, with relative valuations, divergent growth and increasing inflation creating opportunities for an active, concentrated approach that adjusts exposures as regional- and sector-specific fundamentals change.

Read more on our outlook and views in the full white paper.

Disclosure Information

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.

Download full white paper