Documente Academic
Documente Profesional
Documente Cultură
Risks of an aging bull market and record low volatility may Exhibit 2: Low correlations to US financial assets.
spur investors to diversify into real assets for protection. S&P 500 Barclays US Aggregate
Index Level
40
150 Exhibit 3: Markets indicators point to rising inflation.
30 US Inflation Expectations (lhs) US Dollar (inverted, rhs)
100 2.10 0.012
20
US 1 0 Y ear Breakeven Rate (%)
2.00
US Dollar Index (inverted)
10 50 1.90
1.80
0 0
1.70
1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 0.011
Source: Bloomberg, ETF Securities. Data from 1/1/90 to 10/20/17 1.60
1.50
Real assets exhibit a low correlation to both US stocks and bonds 1.40
1.30
historically, and may provide downside protection against a spike
1.20 0.010
in volatility in financial assets (see Exhibit 2). Among commonly
Aug-16
Mar-16
May-16
Mar-17
May-17
Aug-17
Jun-16
Jun-17
Dec-15
Dec-16
Jan-16
Jan-17
Sep-16
Sep-17
Oct-15
Oct-16
Oct-17
Jul-16
Jul-17
Nov-15
Nov-16
Feb-16
Feb-17
Apr-16
Apr-17
1
Past performance is no guarantee of future results.
lowering spending power. Market expectations for inflation have Real assets may present an attractive relative valuation for
also risen in recent years. After recalibrating at the onset of 2017 investors dealing with stretched valuations in addition to a source
and expectations have resumed upward in the second of this year of diversification achieved by their low equity betas.
(see Exhibit 3).
Whats Real and Whats Not?
An environment of elevated and rising inflationary pressures may
The term real assets is a broad category with a varying membership
benefit real assets compared to financial assets. Real assets have a
list. The moniker can be applied to common investments such as
high sensitivity (or beta) to inflation and typically perform well
commodities and real estate to more exotic investments like
when inflation increases. Among liquid real assets, commodities
mineral rights and collectibles (ie: art, wine, stamps). Investors can
have the highest beta to monthly moves in the US consumer price
access real assets through liquid vehicles, illiquid funds, or through
index (CPI) followed by MLPs. An equal weighted mix of real assets
direct ownership as well as through public or private offerings.
results in a beta to US inflation more than 5 times that of stocks
(see Exhibit 4). Stocks have a slight positive beta to inflation while While many financial investments share the diversification and
bonds generally exhibit the opposite relationship. This makes sense inflation-hedging benefits of real assets they should not be
given that inflation eats away at the nominal value of bond classified as a real asset. Real assets provide an inherent hedge
coupons. against financial markets because their value is linked to a physical
Exhibit 4: Real assets more sensitive to inflation moves. asset or property and not to a financial or paper claim on wealth as
5.00 4 .4 is the case for most stocks, bonds, cash, and currencies.
4.00
Bitcoin, a Real Asset? A Bit Farfetched.
Beta to US Inflation
2 .7 2 .8
3.00
2 .2
2.00 1 .5 The recent popularity of Bitcoin and other cryptocurrencies has
1.00 0.5 thrown them into the same classification as real assets and other
- stores of value including gold and reserve currencies. Bitcoin,
(1.00)
however, fails to meet the three major functions of money (medium
-0.6
(2.00)
of exchange, unit of account, and store of value) that other reserve
currencies such as the US Dollar, Euro, and Japanese Yen provide.
(Equal Weight)
Commodities
MLPs
US Stocks
US Bonds
REITs
Precious
Metals
Real Assets
100%
tailwind from new investment demand. 80%
60%
Exhibit 5: Real assets are cheap relative to equities.
Equity Current Price Av erage Price Relativ e 40% 29% 33%
22%
1 6 % 1 7%
Beta to S&P 500 to S&P 500 Discount 20% 7% 9% 9% 1 4% 1 4%
0%
Precious Metals 0.1 1 0.026 0.033 -21 %
VIX Index
Gold
Euro
MLPs
Copper
Bitcoin
US Dollar
Japanese Yen
S&P 500
REITs
Silver
Oil
2
Past performance is no guarantee of future results.
Important Risks
The statements and opinions expressed are those of the author and are as of the date of this report. All information is historical and not indicative of
future results and subject to change. Reader should not assume that an investment in any securities and/or precious metals mentioned was or would
be profitable in the future. This information is not a recommendation to buy or sell. Past performance does not guarantee future results.
The S&P 500 Index is a capitalization-weighted index of 500 stocks selected by the Standard & Poors Index Committee designed to represent the
performance of the leading industries in the U.S. economy. The Barclays US Aggregate Bond Index is a broad-based flagship benchmark that
measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. Real Estate Investment Trust (REIT) is a type of security
that invests in real estate through property or mortgages and often trades on major exchanges like a stock. A master limited partnership (MLP) is a
type of business venture that exists in the form of a publicly traded limited partnership. The Chicago Board Options Exchange (CBOE) S&P 500
Volatility Index (VIX) shows the market's expectation of 30-day volatility. Merrill Option Volatility Estimate (MOVE) Index is a yield curve weighted
index of the normalized implied volatility on 1-month Treasury options. The Consumer Price Index (CPI) is a measure that examines the weighted
average of prices of a basket of consumer goods and services; headline includes all categories while core excludes food and energy. Correlation is a
measure of fluctuation between two variables. Standard deviation (volatility) is a measure of the dispersion of a set of data from its mean. Beta is a
measure of the volatility, or systematic risk, of a security or a portfolio, in comparison to the market as a whole. Bitcoin is a type of cryptocurrency,
which is a digital or virtual currency that uses cryptography for security.