What’s in Your Real Asset Portfolio? Introducing RASA TM

Abstract

In prior research we highlighted the diversity of real assets in terms of their sensitivities to the equity and bond markets and to macroeconomic factors such as growth and inflation. We now extend our analysis to real asset portfolios. Do portfolios exhibit similar characteristics and performance? Or, like the real assets themselves, do real asset portfolios display heterogeneity, with a given portfolio serving a particular investment goal and purpose? We use our Real Asset Sensitivity Analysis (RASA TM) framework to help CIOs estimate the macroeconomic and market sensitivities of a real asset portfolio. Institutional investors have increased their allocations to real assets, either assembling the real asset portfolio themselves from the ground up; investing in a third-party real asset fund; or some combination of the two. To illustrate the diversity of real asset portfolios, we examine third-party public, liquid, real asset funds. RASA sensitivities differ considerably across funds and can differ even when funds have similar broad asset allocations. Institutional investors can use RASA to gauge whether a real asset fund, or custom portfolio, aligns with their investment objectives. Using RASA, we identify fund groups that are likely suited for distinct economic environments. An investor can use this information to select funds that may achieve a targeted investment objective-oriented strategy such as Inflation Protection, Growth, or Growth Protection.