Institutional investors value real assets

Stocks and bonds are the traditional investment choices for institutional investors.

But times have changed. With equity markets now moving toward their previous peaks and fixed income yields near historic lows, they’re returning to the land.

Read: Wood you buy this investment?

Timberland and farmland—considered real assets that have tangible, intrinsic value—offer some particular investment attributes. These include:

• Exposure to rising economic growth in the world’s emerging economies;
• Lower volatility of return, on average, than other real assets such as real estate, energy and infrastructure;
• Strong risk-adjusted total returns;
• A regular stream of cash yields;
• The capacity to improve the risk efficiency of a typical mixed asset portfolio dominated by stocks and bonds; and
• The ability to match the timing of the asset’s financial maturity with the duration and schedule of a pension plan’s liabilities.

Additionally, they have relatively high barriers to entry. This feature limits competition from smaller investors and makes them particularly relevant for the institutional space.

Read more on how global demand for commodities is increasing due to emerging market development.

Also check out:

Emerging markets to lead global growth

Look beyond the Canadian border: AGF

Institutional replication could smooth returns

Think outside the commodities box

Help clients get into private equity