While some energy strategies are struggling this year, real assets as a broader category are not. For example, the FlexShares Real Asset Allocation Index Fund (ASET ) is higher by nearly 17% year-to-date.
ASET “seeks to provide investors with a core real assets allocation that helps address their inflation-hedging, diversification, and income needs. Designed to serve as a real assets allocation solution, the strategy applies a proprietary optimization to the three underlying funds in an effort to minimize the volatility of returns and lower risk in the fund,” according to FlexShares.
ASET uses an ETF of ETFs strategy and holds three other FlexShares products: the FlexShares Global Quality Real Estate Index Fund (GQRE ), FlexShares STOXX Global Broad Infrastructure Index Fund (NFRA ) and the FlexShares Morningstar Global Upstream Natural Resource Index Fund (GUNR ).
GUNR provides exposure to the rising demand for natural resources and tracks global companies in the energy, metals and agriculture sectors, while maintaining a core exposure to the timberlands and water resources sectors, is a part of the risk management theme.
ASET ETF Perks
With its focus on real assets, ASET has multiple benefits, including a decent dividend yield of 2.71% and the potential for investors to reduce correlations to traditional broad market exposures.
“This is particularly important in today’s environment, in which global markets are highly interconnected and experience more volatility in the form of price movement,” notes FlexShares. “Unexpected market shocks (or tail risks) are more common and change the view of normal investment distributions. The following risk solutions may complement investors’ portfolios by providing investments that seek to mitigate exposure to risk while seeking to receive compensation for that risk.”
ASET’s infrastructure exposure can act as a hedge against rising inflation, should that scenario emerge, while providing some leverage to increased spending.
Infrastructure developments are typically large, long in duration and capital-intensive, carrying a high overall cost. Nevertheless, the projects compensate investors by including fairly predictable expenditures to maintain the asset, as well as regulated pricing that typically provides stable and reliable cash flows. Select investors have long enjoyed the unique characteristics of infrastructure to diversify equity risk exposure, generate income and hedge against long-term inflation
Additionally, ASET is poised to benefit if the Federal Reserve lowers interest rates because the fund’s largest sector weight, by far, is 42.51% to real estate, a group that historically performs well when Treasury yields decline.
For more information on the infrastructure sector, visit our Infrastructure category.