Worried About Inflation? New Breed of Real Assets May Be Right for You
Amid slowing economic growth, higher inflation and low but rising interest rates — as well as the market volatility spurred by the war in Ukraine — it often helps to go back to basics. Whatever your investment goals and risk tolerance, you’ll likely now want these three components in your investment portfolio: Diversification, inflation protection and yield.
Nontraditional real assets — “hard-backed” assets outside of traditional real estate sectors — can deliver on all three fronts, as more and more investors are coming to appreciate. Nontraditional real assets include core infrastructure, transport, timber and nontraditional real estate such as self-storage, healthcare and student housing.
Opportunities in disrupted supply chains
Although nontraditional real assets have offered investment opportunities for decades, the current environment may be especially attractive. Current shortages of ships, which carry 90% of global trade, as well as reduced container capacity, have driven lease rates and asset values to historic highs. We think these trends may likely persist over the next two decades.
The pandemic has also created infrastructure challenges at ports, with a surging demand for both trucks and truck drivers. Over the next year or so, shipping delays and port congestion may likely continue to lift profits for owners of nontraditional real assets. Even after pandemic-related supply chain constraints ease, a tight supply of transportation assets may well persist.
Takeaways: When uncertainty is high, simplify
The Federal Reserve is going to antagonize markets this year, and Wall Street is convinced the economy is going to slow. However, consumption and corporate confidence is still high. Investors are uncertain about whether the headwinds or tailwinds will prevail, and the recent volatility is indicative of the controversy.
Here are the simple descriptions of where we stand.
• The Fed: Expect an aggressive hiking cycle until inflation rolls over. The most likely outcome for the economy is a “softish” landing, but risks have risen.
• Wall Street: It’s hard not to see a volatile, range-bound equity market in the near term, but some pockets could be set to outperform.
• Main Street: Housing and durable goods consumption are likely to cool, but services spending could be more resilient.
• The C-Suite: Higher-quality firms with secular drivers and strong management teams should outperform.
Above all, creating a plan and sticking with it are the best ways for investors to maintain control and confidence when the range of possible outcomes is wide.
Rick Barragan is the Managing Director,
Los Angeles Market Manager, for
J.P. Morgan Private Bank.
[email protected] | (310) 860-3658
privatebank.jpmorgan.com/los-angeles
