Welcome to Soundbites, weekly insights on market trends and investment strategies, brought to you by Investment Executive and powered by Canada Life. For today’s Soundbites, we’re talking about real assets with Vince Childers of Cohen & Steers. We talked about inflation, diversification, and correlation. And we started by asking what makes the real-assets class compelling in today’s environment.
Vince Childers (VC): One of the interesting things that we’ve seen this year is more people coming to us actually in search of just more diversifying elements in the portfolio. Unlike in years past, where maybe the focus was more on the inflation-sensitive angle that real assets obviously bring, the question about, “Well, how diversifying can this be for the equities or fixed income in my portfolio?” is a big question. And it makes sense, right? If you think about how concentrated a lot of the broad equity indices have become. Real assets are doing things that are very different, responding to different drivers in the market and the economy. Correlations have basically collapsed to as low as I’ve seen them in my career.
Changing correlations
VC: When I’m talking about correlations, I’m talking about how the returns are correlated between real assets and, say, a broad global equity index. What I’d normally expect to see is if global equities were going up very strongly, that real assets would be going up, but they would be not perfectly in sync. They’d be bouncing around and headed in the same direction. That relationship has basically broken down. There’s almost no relationship at all. Here we are, in 2026, real assets are up north of 14%, solidly outperforming global equities with a near-zero correlation. It’s been a perfect thing to have in the recipe if you’re a strategic asset allocator.
Where he’s finding the best risk-adjusted returns
VC: Right now, the things that we’re liking the most across the real-assets universe are the resource equities — energy companies, mining companies, agribusiness, et cetera — and listed infrastructure. In both cases, what we have is valuations that look relatively well-behaved and growth expectations that look pretty strong, whether we’re looking at consensus expectations or our own numbers internally. We put those two pieces together, and I think the expected returns are best there. If we’re going to fund overweights to resource equities and infrastructure, the prime candidates for underweight are going to be commodity futures and real estate. But even there, those asset categories for us don’t look much worse than neutral unattractiveness.
The interest-rate environment
VC: The interest-rate question is an interesting one, completely at odds with what our experience has actually been. Let’s take something like North American REITs on a year-to-date basis. That’s a group that’s up 22% for the year against a global equity index up around 10% on a total-return basis. And that’s against an environment where the 10-year is up 50 basis points on the year. That’s been basically all real interest rates, which is the component that something like REITs or even to some extent infrastructure, you’d expect to be more sensitive to. And yet these real asset groups have just sort of powered right through it. A lot of times we can get questions along the lines of, ‘Should I stay away from this because rates might go up, or they’ve already gone up?’ And I just think you’re kind of missing the forest for the trees. There are plenty of things that go on in these assets that matter well beyond an interest-rate environment.
Risks to the real-assets thesis
VC: There are, kind of, two things that I would put out there. One would be disinflation-related risk. This is obviously not our base case. We’ve characterized what we think will be the years ahead as a sort of ‘era of scarcity,’ where we expect to see adverse negative supply shocks like we’ve been seeing for the last several years. We think we’ve been in a long commodity underinvestment cycle. We think that geopolitical uncertainty is going to be out there, the realignment of supply chains that may come as the result of that, all of these things add up to a world where we get higher inflation risk than what we were all comfortable with in the pre-Covid decade. That’s not to say, however, that something could come along that could cause some massive collapse into disinflation or — in the worst case — deflation. If something like that happened, that’d be a prescription for our fundamental thesis — and the secular trends in real assets that we like — to come to a sort of abrupt halt. The second element would be if the broader market were to accelerate on the back of technology leadership exclusively focused on AI, that would probably be another place where we’d expect some kind of underperformance. It may be a world where our type of assets still do okay, but they wouldn’t be the juggernaut of assets at the frontier of the AI world. I think about AI and the relationship to real assets as we’re in the more picks-and-shovels part of the equation: power generation, critical minerals and materials, the movement of natural gas, natural gas pipelines, energy transport and so on, the things that have to happen in the real world to make this technology work. And so those would be the two risks that jump out at me.
And finally, what’s the bottom line on real assets in the current environment?
VC: When it comes to what we refer to as the core four real assets — real estate, resource equities, commodities and listed infrastructure — the simple view is we’re overweight resource equities and infrastructure. Resource equities is mostly about strong growth expectations and really, for us, the preferred way to express oil-price upside. On infrastructure, I like the robust growth outlook for the category, on top of what look like still pretty cheap statistical valuations. And I like the fact that infrastructure is a bit more defensive. Where does that leave us underweight is in commodities. Commodities have been on an absolute tear for a good long while now. We’re up 23% year-to-date, year-over-year 30-plus percent. These are big returns. There’s a little bit of question on our side about the upside left in commodities. And then on real estate, it’s a weaker relative growth profile than what we see in infrastructure and resource equities, and more neutral-ish valuations. Things look kind of normal for real estate, versus being a bit more compelling than infrastructure and resource equities. When you put all the pieces together, valuation, growth and, by extension, expected returns for these assets do not look anywhere near as stretched as what we see in the broader market. Real assets look more attractive in some ways just because they haven’t participated in the euphoria and enthusiasm that’s consumed the market and has driven the concentration that we’re all living with now. And so you combine that with the diversifying elements, the collapse in correlation, and I think we’ve got a pretty compelling value proposition for real assets as an asset class.
Well, those are today’s Soundbites, brought to you by Investment Executive and sponsored by Canada Life. Our thanks again to Vince Childers of Cohen & Steers. Visit us at investmentexecutive.com, where you can sign up for our a.m. newsletter and never miss another Soundbite. Thanks for listening.
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