Real Assets is an investment asset class that covers investments in physical assets such as real estate, energy, and infrastructure. Real assets have an inherent physical worth. Real assets differ from financial assets in that financial assets get their value from a contractual right and are typically intangible. Real assets are categorized into three categories:
Real asset appealing to investors for four reasons: high current income, inflation protection / equity appreciation, low correlation to equity markets, and favorable tax treatment.
Background
Investing in real assets has existed in since the advent of property ownership. However, public invested only began in 1965, when the first publicly tradedREIT became listed on the NYSE. This REIT structure has become the dominant legal structure to invest in real estate. The first publicly traded MLP occurred 16 years later, when Apache Petroleum Company listed. The MLP structure has become popular for energy and infrastructure. Combined, these two legal structures been critical to the expansion of real assets as a viable asset class because they are pass-through tax structures, unlike a traditional publicly traded C-corp. However, the trade-off is that at least 90% of the income must be distributed to investors. That being said, there are some real asset companies structured as C-corps. Moreover, after the 2017 Tax Cuts and Jobs Act, some MLPs and REITs are revisiting their structure. Today, real assets are a massive publicly traded asset class.
There are 71 publicly traded MLPs representing almost $300B in equity
There are 219 publicly traded REITs representing over $1.3T in equity
Additionally, there are multiple much smaller sectors that fall in real assets
Renewable energy is estimated to have a market size of slightly more than $1B
The timber REIT market is slightly larger than $26B
Historically investors have gained exposure to this asset via investing in companies or specific strategy. However, in the past few years, several public funds have been started focused on the overall real asset market. The benefit to the individual investor for investing into a single real asset fund to get exposure into the asset class is immediate diversification at a low cost. The two major ETFs in the real asset space are:
Virtus Real Asset Income ETF ]: This is the dominant ETF in the asset class. VRAI is a diversified portfolio of income-producing real asset equity securities. VRAI does not invest in commodities because they do not generate income.
SPDR SSGA Multi-Asset Real Return ETF : This is an ETF of ETFs, This ETF includes commodities, gold, and traditional fixed income.
