How to Invest in Real Estate and Physical Assets, Advice From BofA

• Real asset prices relative to financial assets are at their lowest level since 1925.
• The BofA sees a new fiscal and trade policy aimed at raising wages and creating a bull market for real assets.
• The bank defines nine ways in which investors can implement the topic of real assets.
• You can find more articles on Insider’s business page.

According to Michael Hartnett, chief investment strategist at Bank of America, it is time for investors to turn to real assets for high returns this decade for high returns, as high valuations in the stock and bond markets are likely to be volatile and lower returns.

Unlike financial assets like stocks and bonds, real assets are physical and have fundamental value to them. Some examples are merchandise, real estate, and collectibles like art and diamonds. They are also more closely correlated with inflation, which means that the prices of real assets rise when the dollar’s purchasing power falls.

Real asset prices, however, look cheap compared to government bonds and stocks, which have risen sharply in part due to efforts by the Fed to inject money into the economy. In particular, prices of real assets relative to financial assets are at their lowest level since 1925, Hartnett wrote in a recent note to customers.

Bank of America

The graph above also shows that the bull markets in real assets coincided with strong fiscal stimulus programs in the 1940s and advances in trade policy in 2001. As a result, a new tax and trade policy designed to raise global wages is likely to spark a new one

Bull market
in real assets, he wrote.

In addition, real assets offer higher and more “attractive” returns than stocks and bonds. Physical assets like timber and infrastructure have a higher return than U.S. Treasuries and stocks, he said.

Bank of America

Investors are already recognizing the benefits of owning this asset class and are positioning themselves appropriately.

“5.5% of total ETF market capitalization is exposed to real assets, and we see potential for that number to rise in the coming years,” Hartnett wrote.

9 ways to apply the Real Assets theme

For many, the easiest way to gain access to the asset class is indirectly through exchange-traded funds. However, there are many ways to gain exposure to real assets through direct purchase.

Harnett and his team recommend both approaches for exposure to real estate, farmland, energy and agricultural infrastructure, wine, art, diamonds, automobiles, and precious and industrial metals.

One way to get exposure to commercial real estate is to invest in Real Estate Investment Trusts (REITs). The Invesco S & P 500 real estate ETF of the same weightFor example, seeks to replicate the investment results of an index that weights members of the S&P 500 real estate industry equally.

The second way to apply the Real Assets theme is to invest in an infrastructure that includes pipelines, airports, and cell phone towers. One way of doing this is through that iShares Global Infrastructure ETFThe aim is to map an index made up of infrastructure stocks from industrialized countries.

Another option is betting on energy pipelines through Master Limited Partnerships (MLPs). As such, the North American pipeline ETF for turtles is an option because it tracks an index of pipeline companies structured as corporations, limited companies, and MLPs.

Investors can also take advantage of real-world exposure by betting on funds that focus on transportation infrastructure. One to consider is that SPDR S & P Global Infrastructure ETFThe aim is to achieve the same performance as an index that tracks 75 global companies that represent the industry.

Another way for investors to apply the real asset theme is to invest in home equity funds like the one SPDR S & P Homebuilders ETF, which tracks an index of stocks that are part of the GICS housing sub-sector.

And if you decide to jump into a more specific commodity like wood, that should be considered Invesco MSCI Global Timber ETF, which measures the performance of securities involved in the ownership and management of forest forests and the manufacture of products that use wood as a raw material.

Hartnett specifically recommended special funds like that Art group and the Classic car fund.

However, investors should also consider getting involved Inflation-protected securities for government bondsor TIPS in view of rising interest rates and inflation expectations. As the name suggests, TIPS are inflation-linked to protect investors from a decline in the purchasing power of their money.