The real assets space is often painted with a brush that suggests the asset class is highly homogenous. In fact, the category captures a broad array of sub-sectors, with business operations exposed to a broad array of drivers and risks.

Below I’ll step through some key economic factors, risks, and themes and how they relate to the various real assets sub-sectors. This is of interest to investors as they think about what the fundamental exposures of the sector are, and how the sector might perform under various conditions.

Firstly, let us define the asset class. The most broad definition captures physical assets (where the business/value is derived directly from the matter itself) like infrastructure, real estate and commodities. We narrow the focus to infrastructure and real estate – with a particular emphasis on companies that provide an essential service and exhibit pricing power.

Real Assets sub-sector examples:

In terms of some of the key factors to consider:


  • Regulation (utilities) or contracts (toll-roads) tend to allow for prices to be increased with inflation. Can be various imperfections, such as timing lags
  • REITs often have triple net leases which means that higher costs are largely passed through to tenants
  • Companies with a unique offering (railways) can typically pass on higher inflation to customers

Real interest rates

  • All valuations have some real rate exposure from the discounting effect – this tends to be most prevalent where cashflows are long-dated and fixed, or where growth is high and valued
  • Some companies adjust their prices according to real rates (UK utilities), or may have some cyclical benefit in this environment (railways), but most are exposed to this risk to some degree

Technology / policy disruption

  • Energy: decarbonisation / electrification requires huge investment in renewables and new and enhanced power grids. Europe is seeking to displace Russian gas – requires investment in renewables, LNG terminals, storage
  • Electric vehicles require charging solutions, and autonomous vehicles will impact driving patterns and congestion
  • E-commerce retail market penetration requires urban “last-mile” warehousing close to consumers (where land is scarce, and permitting is difficult)

Commodity exposure

  • Best in class real assets tend to have limited exposure to commodity prices
  • North American oil and gas pipelines are mixed in terms of their exposure to price and volume
  • Renewables companies tend to be insulated by long-term purchase power agreements

This commentary illustrates that real assets are diverse and nuanced. The asset class requires specialist skills to understand the risks and opportunities, rather than a blanket approach. The asset class is certainly not a one trick horse.

Most Milford funds offer some exposure to our preferred real asset securities, and the attractive investment characteristics offered by those companies.