Real assets and the quest for resilient income

COVID-19 has made life harder for already yield-starved investors, and each asset class faces its own challenges.
We draw on the latest thinking from our Real Assets House View and research team to highlight where reliable income sources can still be found in real asset markets.

Real assets span a vastly diverse universe, including real estate, infrastructure and private debt. Less liquid than public bonds or equities, these investments have been sought by investors seeking an illiquidity premium, or the benefit of asset security. The current outlook for each of these sectors is particularly complex, with income drivers affected in different ways by the economic lockdown and social distancing measures.

Long-income real estate has historically performed well in difficult periods; benefiting from long-term, contractual leases that are less economically sensitive than other sectors. For those working with a ten-year horizon, our analysis suggests it is attractive on a risk-adjusted, relative value basis. Where tenants are of a high quality and remain solvent, cashflows should be stable and relatively unaffected by short-term economic disruption.

Assets let to high-quality counterparties, like those in the public sector, have a broadly positive income outlook. Long-lease supermarkets also look comparatively well placed as ‘stay at home’ orders have increased demand for groceries. Further out, though, there may well be a continued shift towards online food ordering at the expense of physical store sales.

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