STRATEGIC

INVESTMENT
MANAGEMET
SESION 02 - INGENIERÍA INDUSTRIAL
REAL ASSETS VS. FINANCIAL
ASSETS:
 Financial assets include things like
stocks, bonds and cash.
 Real assets include things like real
estate, infrastructure and
commodities.
 Assets are the lifeblood of the
economy, enabling us to store,
transfer, and create wealth. They can
typically be classified as either “real”
or “financial” assets.
 Which is the best investment?
https://seekingalpha.com/
DEFINITIONS
 Financial assets are highly liquid assets that are either cash or can quickly be
converted into cash. These include the traditional investments such as stocks
(i.e., equity) and bonds (i.e., fixed income). The defining characteristic of a
financial asset is that it has some type of known monetary value that can
readily be realized. However, it in and of itself lacks any intrinsic value.
 Real assets, on the other hand, are value-generating physical assets that a
business and/or investor owns. These include land, buildings, ships, and other
infrastructure or commodities. The defining characteristic of a real asset is that
it has intrinsic value in and of itself does not rely on monetization and/or
exchange in order to provide value for its owner.
REAL AND FINANCIAL ASSETS ALSO
HAVE SOME KEY DIFFERENCES:
 (1) Real assets are typically less liquid than financial assets since they are
usually more cumbersome to exchange and their markets are not as efficient or
populated.

 (2) The value of real assets also is much more dependent on factors such as
location, function, and operation and exchange costs, whereas financial assets
are typically fungible, there by making them location independent.
INVESTMENT COMPARISON
 Financial assets offer the advantage of convenience, liquidity, and efficiency
whereas real assets are safer in that they do not rely on a public marketplace to
derive value for the owner while also being more inflation and “ 
black-swan event” resistant … so, which is it?
 Given that right now:
 (1) Interest rates remain at historically low levels and stock market valuations
are historically high:
CONTINUATION
 (2) Allocations to real assets are expected to nearly double.

 It would appear that the answer is a no brainer in favor of real assets. In fact, retirement
pensions and endowment funds – which have the mandate of generating highly reliable and
regular income for distribution – are no longer able to achieve their investing goals by
focusing solely on bonds (LQD, VCLT, IEF) after a multi-decade-long decline in interest rates
and are instead looking to real assets to meet their needs. Already, trillions of dollars have
flown to real assets and the trend appears to be just getting started. In less than 10 years,
institutional capital in this space has grown by $20 trillion, and another ~$40 trillion is
expected in the decade ahead.
RECESO
IN A WORLD OF LOW INTEREST RATES
AND ELEVATED STOCK MARKET
VALUATIONS, REAL ASSETS OFFER:
 Higher income yield: The 10-year Treasury may yield only 2.1%, but real assets will often trade
at yields in the 6%-10% range – and can be leveraged (using record low long term interest rates)
to generate even greater cash-on-cash returns.
 Greater total returns: Real assets generate high income, but they also appreciate in value and
grow cash flow. A well-located office tower may yield 6% and grow in value by 3% per year.
Add to that a bit of leverage and you can reasonably expect double-digit total returns.
 Inflation protection: One of the biggest and most underrated risks today is accelerating inflation.
When you invest in low yielding bonds, you are at big risk. Real assets, on the other hand, are
well-protected as their income and values tend to grow along with inflation. As such, they
provide a good hedge against inflation risk.
 Valuable Diversification: Traditional assets (stocks and bonds) are highly volatile and adding real
assets to a portfolio has proven to lower volatility. As such, investors can profit from
diversification benefits while boosting returns and income.
THANK YOU