In an era of market volatility and economic uncertainty, investors seek reliable havens to preserve and grow their capital. Real assets have emerged as a robust defensive solution, offering tangible protection against inflation and downturns.

By deriving value from their physical utility in housing, transport, energy, and agriculture, these assets provide a resilient income stream and intrinsic worth that financial instruments alone cannot match.

Definitions, Scope, and Taxonomy

Real assets are tangible, long-lived physical assets whose value arises from their material characteristics and role in the real economy, rather than contractual cash flows.

They stand apart from financial assets like stocks and bonds, which represent claims on cash flows, and from intangible assets such as patents and brands.

• Real estate: commercial, residential, industrial, and specialty properties
• Infrastructure: transport networks, energy grids, digital communications, social facilities
• Natural resources & commodities: energy, metals, agriculture, timber, farmland

This taxonomy helps investors identify where intrinsic value lies and how assets behave under different economic conditions.

Investment Vehicles and Structures

Access to real assets can be tailored to each investor’s goals through direct ownership or pooled vehicles. Each option balances control, liquidity, and diversification.

• Direct ownership of land, buildings, or infrastructure projects
• Listed vehicles such as REITs and infrastructure companies
• Private funds specializing in real estate, infrastructure, or real assets credit
• ETFs and closed-end funds with diversified real asset exposure

Direct holdings offer full operational control but require significant capital and management expertise, while pooled vehicles provide professional oversight and easier diversification.

Why Real Assets Are “Defensive”

Real assets possess unique qualities that can soften portfolio swings and deliver stable returns in turbulent markets.

Diversification and Low Correlation

Real assets typically exhibit low correlation with equities and bonds, since their returns depend on local supply-demand factors, regulations, and physical usage rather than market sentiment.

Over a 20-year US-oriented CBRE IM study (2003–2022), a traditional 60/40 equity-bond portfolio returned 6.5% annually with 12.3% volatility.

A 25–30% allocation to diversified real assets produced higher returns and lower overall volatility than a pure 60/40 mix, enhancing risk-adjusted outcomes.

Moreover, risk budgeting analysis shows real assets often contribute less to overall portfolio risk than their capital weight, improving balance.

Income Stability and Visibility

Many real assets generate predictable, contract-driven cash flows through long-term leases, regulated tariffs, and commodity contracts.

Real estate leases can span 5–20 years, providing rent certainty, while utilities and toll roads operate under concession or regulatory frameworks that limit revenue swings.

Senior secured real assets credit further offers stable interest income with strong downside protection, as lenders have first claim on collateral.

Inflation Protection

Physical assets naturally benefit from rising input costs: construction, materials, and labor expenses all increase with inflation, underpinning valuations.

Leases and tariffs often include CPI-linked escalators or periodic resets, granting automatic inflation pass-through to revenues.

Historically, commodities and natural resource assets outperform in high-inflation regimes, providing an effective hedge against eroding purchasing power.

Downside Protection and Capital Preservation

Unlike many growth businesses reliant on intangible intellectual property, real assets hold residual hard collateral value even in stress scenarios.

Essential services—housing, energy, transport—maintain demand, mitigating revenue declines during recessions.

Appraisal-based valuations in private real assets may smooth returns, but de-smoothed data still demonstrate compelling risk-adjusted performance against public markets.

Core Real Asset Segments and Their Defensive Roles

Each real asset segment contributes distinct defensive benefits, making a diversified allocation more robust.

Real Estate

As a cornerstone of many portfolios, real estate offers durable income streams and serves as a natural inflation hedge.

Key sub-segments include:

• Multifamily and residential properties
• Office and corporate campuses
• Industrial and logistics facilities
• Specialty assets like data centers, healthcare, and cold storage

Sectors with shorter leases can reprice rents more frequently, boosting returns in rising-rate environments.

Infrastructure

Transport corridors, utilities, and digital networks deliver regulated or contracted income that often includes inflation escalators.

Private infrastructure has historically returned around 9–10% annually with lower volatility than equities, underscoring its defensive appeal.

Natural Resources and Commodities

Energy, metals, and agricultural assets act as direct inflation hedges and benefit from global supply constraints.

Royalty structures in mining and oil production provide steady participation in price appreciation without operational risk.

Real Assets Credit

Loans secured by physical assets deliver income diversification and strong downside protection through priority claims on collateral.

These senior tranches can outperform unsecured debt during market stress, reinforcing portfolio defense.

Building a Defensive Portfolio

Strategic allocation to real assets requires balancing liquidity needs, risk tolerance, and return objectives.

• Determine appropriate target weightings by combining public and private exposures
• Diversify across segments to capture varied economic drivers
• Match investment vehicle choice to desired liquidity and control levels

By weaving together real estate, infrastructure, natural resources, and credit, investors can craft a resilient portfolio resilient to market shocks and inflationary spikes.

Embracing the defensive power of real assets not only preserves capital during downturns but also positions portfolios for durable growth across economic cycles.