Investors expect to increase allocations to real assets over the next twelve months according to research with 200 UK wealth managers, financial advisers, discretionary fund managers, fund selectors and investment analysts from TIME Investments (TIME), which specialises in asset-backed income-producing funds.
76% of investors surveyed expect to increase their allocation to real estate over the next twelve months, with 74% for infrastructure. This means that they could benefit from macro conditions which are looking more favourable for real assets in 2024, and discounts could continue to close for listed assets.
The catalyst to increase allocation to real assets is driven by a number of factors the research found. These included a desire to de-risk portfolios through diversification (67.5%), an increased focus on ESG (60.5%) and a desire for secure income streams (44.5%).
The research showed that the majority (70%) of advisers predicted a challenging economic climate and investment environment and did not expect conditions to improve for at least 12 months.
Andrew Gill, Fund Manager of TIME:UK Infrastructure Income offers his view for real assets in the short term and the outlook for 2024: “In the short term, we share the view of advisers that uncertainty and volatility is likely to persist. However, we are seeing values stabilise in most real estate and infrastructure sectors and the reduction in bond yields seen in late 2023 should support this further. Traditionally, reducing bond yields have been a catalyst for greater investor interest in real assets, making conditions more supportive for a return to growth.
“We have also seen a significant change in market conditions and expectations with UK inflation dropping materially. This could lead to earlier rates cuts than previously expected with forecasters, such as Capital Economics, moving forward their expectations for central bank rate cuts.
“The UK economy may escape a technical recession, but in the very near term, most economic forecasters are expecting slow economic growth. Our research findings highlight this could benefit some sectors with the majority (97%) of investors thinking that the challenging economic climate favours investments in alternatives such as real assets, which may offer lower volatility and more stable returns.
Andrew Gill said, “With economic growth likely to remain subdued, sectors with robust and growing cash flows, such as real estate and infrastructure, are likely to outperform over the long term. Growing cash flows should also continue to fuel income and dividend increases in most real asset sectors.”
