Real Assets

Why to Consider Diversified Real Assets Amid Inflation

Chart

Mar 03, 2021

Real assets have performed well during periods of greater-than and less-than-expected inflation

We believe inflation over the course of 2021 is likely inevitable, even with contained energy prices and stable labor costs. Record levels of monetary policy stimulus, central bank plans to let inflation run hot, rising fiscal deficits and a recovering economy are all contributing to this backdrop.

In response, we advocate having exposure to listed real assets that includes infrastructure, energy infrastructure and real estate securities. The chart above shows how these listed real assets have performed relatively well in periods of both greater-than-expected and less-than-expected inflation. In contrast, traditional inflation hedges such as natural resource equities, commodities and TIPS have historically performed relatively better only when inflation is greater than expected, given their greater sensitivity to inflation.

Active management can be an attractive investment option for achieving the right mix of inflation hedges. Our approach to diversified exposure involves maintaining exposure to infrastructure, energy infrastructure and real estate securities, and allocating to more traditional inflation hedges if the inflationary environment warrants it.

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The quoted indexes within this publication are unmanaged and cannot be purchased directly by investors. Index performance is shown for illustrative purposes only and does not predict or depict the performance of any investment. There may be material factors relevant to any such comparison, such as differences in volatility and regulatory and legal restrictions between the indexes shown and any investment in a Brookfield strategy, composite or fund. Brookfield obtained all index data from third-party index sponsors and believes the data to be accurate; however, Brookfield makes no representation regarding its accuracy. Indexes are unmanaged and cannot be purchased directly by investors.

Brookfield Public Securities Group LLC does not own or participate in the construction or day-to-day management of the indexes referenced in this document. The index information provided is for your information only and does not imply or predict that a Brookfield Public Securities Group LLC product will achieve similar results. This information is subject to change without notice. The indexes referenced in this document do not reflect any fees, expenses, sales charges or taxes. It is not possible to invest directly in an index. The index sponsors permit use of their indexes and related data on an "as is" basis, make no warranties regarding same, do not guarantee the suitability, quality, accuracy, timeliness and/or completeness of their index or any data included in, related to or derived therefrom, and assume no liability in connection with the use of the foregoing. The index sponsors have no liability for any direct, indirect, special, incidental, punitive, consequential or other damages (including loss of profits). The index sponsors do not sponsor, endorse or recommend Brookfield Public Securities Group LLC or any of its products or services. Unless otherwise noted, all indexes are total-return indexes.

Index Definitions

The Alerian Midstream Energy Index is a broad-based composite of North American energy infrastructure companies. The capped, float-adjusted, capitalization-weighted index, whose constituents earn the majority of their cash flow from midstream activities involving energy commodities, is disseminated real-time on a price-return basis (AMNA) and on a total-return basis (AMNAX).

The Alerian MLP Index is the leading gauge of energy infrastructure Master Limited Partnerships (MLPs). The capped, float-adjusted, capitalization-weighted index, whose constituents earn the majority of their cash flow from midstream activities involving energy commodities, is disseminated real-time on a price-return basis (AMZ) and on a total-return basis (AMZX).

The Bloomberg Commodity Index is a broadly diversified index that tracks the commodities markets through commodity futures contracts.

The Bloomberg Barclays Global Aggregate Index is a market capitalization-weighted index, comprising globally traded investment grade bonds. The index includes government securities, mortgage-backed securities, asset-backed securities and corporate securities to simulate the universe of bonds in the market. The maturities of the bonds in the index are more than one year.

The Bloomberg Barclays U.S. Treasury Inflation Notes Index is composed of Inflation-Protection Securities issued by the U.S. Treasury (TIPS).

The Datastream North American Pipelines Index is an index of energy pipeline companies domiciled in North America, as compiled by Thomson Reuters Datastream. This index is used in the exhibits of this report as a proxy for MLPs prior to the inception of the Alerian MLP Index.

The Datastream World Basic Materials Indexes is an index of global companies in the materials sector, as compiled by Thomson Reuters Datastream.

The Datastream World Index Series of infrastructure-related sectors, including Gas, Water & Multi-Utilities, Materials and Oil & Gas Pipelines, is used as a proxy for infrastructure prior to the inception of the Dow Jones Brookfield Global Infrastructure Index in the exhibits of this report. These indexes are compiled by Thomson Reuters Datastream.

The Datastream World Oil & Gas is an index of global oil and gas companies, as compiled by Thomson Reuters Datastream.

The Datastream World Pipelines Index is an index of global energy pipeline companies, as compiled by Thomson Reuters Datastream.

The Dow Jones Brookfield Global Infrastructure Index is calculated and maintained by S&P Dow Jones Indices and comprises infrastructure companies with at least 70% of their annual cash flows derived from owning and operating infrastructure assets, excluding Master Limited Partnerships. Brookfield has no direct role in the day-to-day management of any Brookfield-branded indexes.

The FTSE EPRA Nareit Developed Index is an unmanaged market-capitalization-weighted total-return index, which consists of publicly traded equity REITs and listed property companies from developed markets.

The FTSE Global Core Infrastructure 50/50 Index gives participants an industry-defined interpretation of infrastructure and adjusts the exposure to certain infrastructure sub-sectors. The constituent weights are adjusted as part of the semi-annual review according to three broad industry sectors - 50% Utilities, 30% Transportation including capping of 7.5% for railroads/railways and a 20% mix of other sectors including pipelines, satellites and telecommunication towers. Company weights within each group are adjusted in proportion to their investable market capitalization.

The ICE BofA BBB U.S. Corporate Index is a subset of ICE BofA U.S. Corporate Index including all securities rated BBB1 through BBB3, inclusive. The ICE BofA U.S. Corporate Index tracks the performance of U.S.-dollar-denominated investment-grade corporate debt publicly issued in the U.S. domestic market.

The MSCI U.S. REIT Index is a free float-adjusted market capitalization weighted index that is comprised of equity Real Estate Investment Trusts (REITs). With 153 constituents (large, mid, and small cap) it represents about 99% of the U.S. REIT universe.

The MSCI World Index is a free float-adjusted market-capitalization-weighted index that is designed to measure the equity market performance of developed markets.

The S&P Developed Market REIT Index serves as a benchmark of publicly traded equity REITs domiciled in developed markets.

The S&P Global Natural Resources Index includes 90 of the largest publicly traded companies in natural resources and commodities businesses that meet specific investability requirements, offering investors diversified, liquid and investable equity exposure across three primary commodity-related sectors: Agribusiness, Energy and Metals & Mining.