May 29, 2012
--- The institutional investor mindset toward real
assets is shifting significantly, according to research. ---
A research paper from J.P. Morgan
Asset Management forecasts that institutional investor allocations
to real assets will rise, from their current average of roughly 5% to 10%, to
more than 25% of portfolios in the next decade. J.P. Morgan predicts real
assets will move from an alternative to a mainstream asset class.
Low bond yields, along with outsized
equity market volatility and modest equity returns, have brought us to a new
asset allocation tipping point, the paper said. Global real assets—real estate,
infrastructure, transport and natural resource assets that can provide higher
income than bonds and superior risk-adjusted returns to equities—will increase
in size and importance in investor portfolios.
Joe Azelby, chief executive of
Global Real Assets at J.P. Morgan Asset Management, and co-author of the paper,
is calling the shift “the realization,” as institutional investors are
undergoing a structural shift realizing they will not be able to achieve the
returns they need from fixed income and becoming increasingly disillusioned
with equities, given the volatility and stunted returns of stocks over the last
decade. Azelby thinks investors will be lured by the solid yields, stable total
returns, inflation sensitivity and attractive diversification of real assets,
causing them to fundamentally rethink portfolio
The paper contends that investors
who recognize and act on this realization in their portfolio allocations are
likely to have better investment outcomes than those who do not.
The research paper will be
distributed to J.P. Morgan institutional clients. More information is here.