Understanding Real Asset Funds

By Author: Kelly Leary
Total Articles: 272
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For investors looking to alternatives to the stock market, real asset funds are attractive for diversifying risk in less-volatile investments.


Real assets provide an excellent hedge against inflation and are particularly attractive in times of market volatility, when stocks and bonds are underperforming or erratic. This is because real assets – things such as land (real estate), natural resources (oil, gas and coal), precious metals (gold and silver), commodities (timber, wheat) and equipment – often perform counter to the market. Investors flock to real asset funds when other investments, including publicly traded stocks and bonds, are volatile or depressed.


A real asset fund allows the individual investor certain advantages. He or she can be diversified across one or several real asset categories. That investor is also joining similar investors to own more of one or several assets.


A good illustration of the advantages of real asset funds is land investment(ie, undeveloped real estate). Where an individual investor would ...
... want to limit his or her exposure on a single piece of property owned outright (or owned with the help of a loan), an asset fund made up of many investors spreads the risk, often without the need for external financing (ie, bank loans). With a larger pool of money, it becomes possible to purchase larger and more attractive parcels of land. The fund investors are also able to hire better advisors, counsellors and managers to maximise their investment. These professionals typically work within the same group, thereby guaranteeing more focused advice and greater commitment.


Currently, asset fund managers are very actively involved in real estate acquisitions, owing to the exceptionally low valuations on land coming out of the multiyear global recession. Because banks still follow stringent lending criteria, private investors, in the aggregate, in a real asset fund are better able to purchase properties with strong growth potential.