Getting real with real assets
Inflation appears to have transitioned from its pre-Covid average of 2% to a stickier point closer to 3%, and we do not expect a near-term return to prior levels. In this environment, we believe real assets, such as commodities, infrastructure and REITs, can provide inflation protection, diversification and return potential.
3 mins Reading time
Published on 25 August 2026
Before Covid, consumer inflation averaged about 2%, in line with the Federal Reserve’s target. Today, inflation appears to be operating in a new regime closer to 3%. It remains sticky, and we do not expect a near-term return to prior levels. In our view, the sharp rise in longer-dated global bond yields to multi-year highs suggests markets are also pricing in persistently higher inflation.
Against this backdrop, real assets — particularly commodities, infrastructure and REITs — remain well positioned. Historically, these areas have performed well during periods of elevated inflation. We also see further upside from a durable capital expenditure and manufacturing cycle, supported by aging infrastructure replacement, onshoring across industries, higher defense spending and continued artificial intelligence-related investment. Commodities and infrastructure should be key beneficiaries of these trends.
Real estate investment trusts (REITs) are also attractive now. They add exposure to income-producing real estate, where rents and property values can rise with inflation, complementing the inflation sensitivity of commodities and infrastructure.
Taken together, we believe that an allocation to real assets with exposure to commodities, infrastructure and REITs can help protect against inflation while enhancing returns and improving diversification. As a result, we have increased our exposure to the asset class.
991549 Exp : 25 August 2027
YOU MIGHT ALSO LIKE
Higher inflation has been a dominant theme of the current decade. In addition to price shocks, it is being shaped by secular investment trends in infrastructure, defense spending, onshoring and the ongoing AI buildout. These structural changes reinforce the case for looking beyond traditional 60/40 portfolios to include real assets as a source of diversification and return potential in portfolios.
As the S&P 500 approaches all-time highs, there are renewed concerns among investors about elevated valuations. However, historically strong profitability and expected earnings growth appear to support current pricing. In addition, the current S&P 500 price-to-earnings (P/E) ratio is roughly equal to the average since Covid. As a result, we do not view U.S. equities as being in bubble territory and we remain constructive on the asset class.
Stocks, as measured by the S&P 500, are up over 13% through early August. The solid gains have been fueled by a resilient economy, steady consumer spending, optimism around artificial intelligence and better-than-expected earnings growth. Still, some investors worry the advance may be too concentrated in technology and that AI-capex monetization may fall short of expectations. A closer look suggests that it is not just tech moving the market higher.
Markets are navigating tensions between a Fed that offers less guidance and an inflation backdrop that remains sticky. Added uncertainty from Middle East tensions and energy-price swings is further shaping sentiment, with recent moves in Treasury yields suggesting the market wants the Fed to hike. However, with yield volatility expected to linger in the near term, we see today’s elevated Treasury yields as an especially compelling opportunity in fixed income.
