Why “Real Assets” Offer Real Value to Investors

Oct 11, 2023

Investing in securities that have exposure to tangible assets like infrastructure, real estate and natural resources can help you hedge against inflation and stabilize your portfolio in fluctuating markets.

Kevin Demers, CFA

Key Takeaways

  • Persistent inflation and a resilient economy could spur the Federal Reserve to keep interest rates elevated, which could weigh on some stocks.
  • Exposure to real assets can help investors hedge against inflation and diversify their portfolios while generating predictable income streams.  
  • Investors can explore opportunities in infrastructure, real estate and natural resources that may benefit from economic growth trends. 

Stocks and funds that offer investors exposure to “real assets”—that is, tangible assets like infrastructure, real estate and natural resources, whose value is linked to their physical attributes—may be appealing in an environment of solid economic growth, persistent inflation and higher interest rates.


That’s the scenario investors face today. The U.S. economy saw an unexpected surge in the first half of 2023, growing an annualized 2%, and current indicators point to continued solid growth. However, inflation is proving sticky, amid a tight U.S. labor market, low housing supply and resurgent energy prices. Those price pressures are prompting the Federal Reserve to keep interest rates aloft for longer than previously expected. Higher rates, in turn, could weigh on some U.S. equity valuations and leave today’s richly valued benchmark stock indices vulnerable.


Here’s why exposure to real assets could make sense for investors under those circumstances.

Three Reasons to Consider Real Assets

It is possible for investors to hold real assets in their portfolios – for instance, by purchasing gold or buying a share of a building – but it can be more difficult and potentially more risky than purchasing stocks or funds that offer exposure to real assets. Doing so offers a number of potential benefits:


  • A hedge against inflation: Real assets tend to increase in value along with inflation, as they contractually or directly pass on higher prices to consumers, allowing investors to keep pace with inflation.


  • Potential for competitive returns: First, stocks and funds with exposure to real assets can generate a consistent income stream for investors, regardless of the economic environment or short-term market fluctuations. In addition, real assets may outperform during periods of higher “nominal” economic growth (or the economic growth rate before being adjusted for inflation).
  • Diversification potential: Stocks and funds with exposure to real assets have traditionally had low correlations to other stocks and to each other, meaning their value does not tend to closely track the ups and downs of these other assets. Should traditional investments decline, for example, certain real assets may help provide stability and limit overall losses in a portfolio. 

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How to Invest in Real Assets Today

While there are many securities with exposure to real assets, we see select opportunities in three areas that may benefit from economic growth trends. 

  1. 1

    Thanks to the 2022 Inflation Reduction Act, along with the 2021 Infrastructure Investment and Jobs Act, U.S. businesses across the Energy, Industrials, Materials and Utilities sectors are positioned to take advantage of hundreds of billions of dollars in new infrastructure spending. We suggest investors look for high-quality utility companies that are prioritizing clean energy projects, such as nuclear, hydrogen and wind-power generation, which may make them eligible for potentially lucrative new tax credits and government subsidies.


    In addition, investors may want to consider gaining broad exposure to U.S.-based Industrials and Materials, as those sectors could benefit from increased spending on aggressive domestic investment agendas that seek to “re-shore” operations back on U.S. soil. Additionally, after pandemic disruptions, companies are re-evaluating their supply chains’ resilience and considering capital investments that may further benefit those sectors.

  2. 2
    Real estate

    Although recent troubles in commercial real estate warrant caution, investors can find compelling opportunities in real estate investment trusts (REITs) that are poised to capitalize on the rise of artificial intelligence (AI), such as data-center REITs. Because state-of-the-art generative AI requires massive amounts of data storage and processing power, data-center REITs may offer both attractive growth potential and high dividend yields as AI plays a growing role across the economy.

  3. 3
    Natural resources

    This category includes companies that produce commodities like oil, natural gas, precious metals and agriculture. Within energy, some companies focused on oil and natural-gas exploration, drilling and extraction are attractively valued today and may benefit from robust demand alongside continued constraints on the global supply of crude. In addition, businesses focused on certain types of natural-gas exports may offer robust cash flow in the form of dividends or special distributions, which can help investors mitigate the risk of price fluctuations and achieve predictable revenue.

The Importance of Being Selective

Real assets are not without risk, and this includes stocks and funds with exposure to them. When evaluating potential investments, consider factors such as their sensitivity to economic growth, the impact of interest rate changes, potential unfavorable regulatory developments and the risk of long-term shifts in demand. Be selective and choose companies with strong balance sheets, reasonable valuations and attractive dividend yields.


Ask your Morgan Stanley Financial Advisor how your portfolio may benefit from actively managed exposure to real assets. Your Financial Advisor can help you access opportunities to invest in stocks and funds with exposure to real assets that our strategists believe may generate strong performance through varied market environments. For example, you may want to consider reviewing the Morgan Stanley Global Investment Office’s Real Assets Equity Income Model portfolio with your Financial Advisor.

Find a Financial Advisor, Branch and Private Wealth Advisor near you. 

Check the background of Our Firm and Investment Professionals on FINRA's Broker/Check.

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