The study, which was written by University of Notre Dame finance professor K J Martijn Cremers, analyses the performance of resources, infrastructure and property between 1978 and 2012.
It finds that all three asset classes would have significantly reduced the volatility of a traditional equities/government bonds portfolio, without negatively affecting overall performance. Such diversification benefits were greatest for direct investments in farmland and infrastructure.
Forestland link to CPI
However, only the performance of timberland (as measured by the NCREIF Timberland Index) was positively related to changes in the consumer price index over the full time-frame studied, indicating that it could serve as an attractive long-term inflation hedge with little downside risk.
Commercial real estate was similarly effective over a shorter period of significant inflation between 1978 and 1987, but suffered greater declines than timberland – including a cumulative fall of 24% in the NCREIF Property Index between the second quarter of 2008 and the final quarter of 2009.
Fears grow on inflation
Survey data from this year’s Expert Investor Europe conferences in Frankfurt, Madrid, Paris and Stockholm shows that fund selectors in these markets are preoccupied by the threat of deflation over the next 12 months, but fear problematic inflation on a three- to five-year time-horizon.
Meanwhile, consumers in most European countries expect above-target inflation in both one and five years’ time, according to research from M&G.
Platinum members can view full voting breakdowns for the Expert Investor Deutschland, Spain, France and Nordic events. To see how sentiment on various topics has changed over time, use the Country Data Summaries links on the right-hand side of The Data Centre.
A copy of “The Performance of Direct Investments in Real Assets: Natural Resources, Infrastructure, and Commercial Real Estate” can be downloaded from the Global Financial Institute website, here.