On solid ground: foundations of real assets investing

Ranging from rail to regulated utility, and senior housing to data centers, real assets across infrastructure and commercial real estate are the backbone for economic development — spurring growing global demand for these assets. Listed real assets may provide a multitude of benefits to an investor’s portfolio, including diversification, inflation hedging and a nontraditional source of income.

What are real assets?

Broadly, real assets provide the framework and resources to facilitate everyday activity in the world economy. While numerous types of investments could be considered real assets, our definition includes:

• Real estate, including real estate investment trusts (REITs). Land and commercial properties including apartments, self-storage, warehouses, data centers, etc.
• Infrastructure. Assets and networks used to transport, store and distribute goods, energy, people and information, such as toll roads, pipelines, airports and cellphone towers.
• Commodities. Basic goods such as oil, natural gas, precious metals, gold, corn and soybeans.

Unlike conventional stocks and bonds, the value of listed real asset investments comes from the physical nature of their underlying assets. This direct link to hard assets means real assets often store long-term value better than more traditional investments. Their intrinsic value may increase due to higher utilization, greater demand or scarcity of supply.

Listed real assets offer enhanced income and a higher degree of earnings visibility than traditional public equities, which makes them an attractive way to extend portfolio duration when short-term yields are declining.

Listed real assets offer a multitude of benefits

While the inherent characteristics of each real asset can vary, they have several features in common, including improving diversification (Figure 1), hedging inflation (Figure 2) and generating income (Figure 3).

A second derivative to the AI trade

While economic resilience and inflation protection support a strategic allocation to listed infrastructure, several segments — notably U.S. regulated utilities — have emerged as beneficiaries of surging energy demand driven by three factors:

• The rise of generative AI and its data center requirements, plus broader electrification and onshoring of U.S. manufacturing.
• Escalating capital expenditures for renewable, gas, and nuclear generation, as well as grid upgrades.
• Major investments in electric transmission and gas pipelines to support expanded generation capacity.

Multiple forces signal a future requiring rapidly increasing energy production. Global AI investment is estimated at $375 billion in 2025, projected to reach $631 billion by 2028 (IDC). Meeting this growth demands substantial new data center infrastructure — with significant power generation implications. Stanford University reports that global private investment in AI infrastructure reached $37 billion in 2024.

Consulting firm ICF forecasts U.S. annual electricity demand will grow 63% over the next two decades versus the previous two (Figure 4). These projections have doubled — in some cases tripled — earnings growth expectations for certain U.S. regulated utilities over the coming years, with potential for further upside.

Macro factors and monetary policy create an attractive entry point

Pandemic-era economic lockdowns followed by a historically rapid central bank tightening cycle served as stiff headwinds for infrastructure and commercial real estate. This is due to the duration of their cash flows, higher use of leverage compared to broader equities, and growth that relies heavily on the physical movement of people.

While this environment was challenging, relative underperformance was driven largely by sentiment and multiple compression, as unwavering negative investor sentiment outweighed impressive earnings growth.

Furthermore, the attractive yields that had been a calling card for listed real assets investors were suddenly overlooked. Rising rates and an inverted yield curve made cash one of the most attractive risk-adjusted investment options of the past two years.

However, the challenging macro backdrop over the past five years set the stage for an attractive entry point into these asset classes (Figure 5).

Headwinds slow as new deliveries ease

Since the pandemic, commercial real estate fundamentals have been reshaped by structural demand shifts and a materially altered development landscape. Following construction surges earlier in the cycle, higher interest rates, tighter credit conditions, elevated costs and more conservative lender underwriting have sharply curtailed new industrial and multifamily development. The forward supply pipeline has thinned considerably, reducing near-term oversupply risk (Figure 6).

This supply restraint coincides with durable demand drivers that emerged or accelerated since the pandemic. Industrial assets benefit from e-commerce adoption, supply-chain reconfiguration and onshoring, while multifamily demand remains supported by housing affordability constraints and sustained household formation. The resulting imbalance favors existing, well-located assets, enhancing occupancy stability, rental growth and cash-flow visibility. Reduced development competition and resilient tenant demand create an attractive backdrop for long-term investment in high-quality industrial and multifamily real estate.

A clear path forward

Listed real assets are uniquely positioned to continue their outperformance during this rate cutting cycle. Several factors bode well for the near- to intermediate-term outlook, including a history of strong returns through periods of falling rates, secular trends such as housing supply/affordability and the demand for energy.

Furthermore, broad positioning within listed real assets remains light. Paired with either attractive valuations or multiple expansion aided by lower rates (Figure 7), we believe now is an opportune time for investors to consider allocating to listed real assets.

Consider income-producing real assets

Historically, income-producing real assets such as infrastructure and real estate have supplied competitive total return and positive inflation hedging effects, with lower correlations to more traditional stocks and bonds. These asset classes have also provided convincing yields, helping investors diversify their income sources. For these reasons, we feel income-producing real assets should be an important part of a balanced portfolio.