Over a decade ago, famed venture capitalist Marc Andreessen said, “Software is eating the world,” reflecting his viewpoint that the internet and software businesses were the new frontier of American and global business. While the success of asset-light business models, such as cyber-security, has shown varying degrees of success over the last decade, in the present, there is a growing demand for real (i.e., tangible) assets, making it a compelling asset class for interested investors.
What are Real Assets
Real assets are tangible, physical assets whose value is derived from their actual use, such as apartments, bridges, power plants, and farms. They play a significant role in modern society and can be a source of diversification, income generation, and a hedge against inflation for investors who utilize them within their portfolio.
Real assets can encompass many asset types, but three broad categories are often utilized within the asset class: Real Estate, Infrastructure, and Natural Resources.
Real estate is physical property such as land or buildings that are leased to tenants in order to generate regular cash flow. Examples include apartments, office spaces, warehouses, retail stores, and malls. Commercial real estate is the largest sub-category of real assets and consists of four main property types: multifamily/residential, office, industrial/warehouse, and retail.
Infrastructure refers to the permanent facilities and installations needed for a society’s functioning or large-scale economic commerce. Examples of infrastructure include bridges, toll roads, airports, power plants, and cell towers, as well as community structures such as hospitals, schools, and parks. We can broadly categorize infrastructure into economic and social infrastructure.
Natural resources are materials from the earth that support our daily lives and needs. Examples of natural resources include oil and gas investments, farmland, woodland, metals, and minerals.
What’s Driving the Surge in Real Asset Demand
The proliferation of artificial intelligence development and the need for semiconductors has catalyzed real asset demand. As mentioned in a previous article, the need for data centers to store servers that run continuously has been an opportunity for REITs. However, AI development has also renewed interest in nuclear energy.
As reported by Bloomberg, Microsoft Inc. has brokered a deal with Constellation Energy Corp., the biggest US operator of reactors, to reopen the Three Mile Island nuclear plant in Pennsylvania. Constellation Energy Corp. will invest $1.6 billion to revive the plant, and Microsoft has agreed to purchase the energy generated from the plant for two decades exclusively.
The action is the latest sign of surging interest in the nuclear industry as power demand for AI soars. The growing demand for electricity — from factories, cars, and data centers — has spurred interest in nuclear plants that can provide carbon-free power around the clock.
Within the real estate segment, the change in the interest rate environment, among other trends, is uplifting market sentiment around commercial real estate for 2025. As outlined in Deloitte’s 2025 Commercial Real Estate Outlook. Among the real estate asset segments poised to be of great economic value, industrial/manufacturing leads, followed by digital economy (i.e., data centers) and multi-family housing.
The demand for industrial is reflective of the trend of near-shoring, where companies are pushing for greater supply chain resilience by bringing their manufacturing facilities closer to home for shorter, more flexible shipping.
Since the passage of the United States-Mexico-Canada Agreement in 2020, reshoring in North America increased, with the low cost and high availability of labor drawing many companies to Mexico in particular. Companies that have made recent announcements for investment into the region include Walmart and Volkswagen. Mexico surpassed China as the largest exporter to the United States in 2023.
Investing in Real Assets with BREA ETF
Brompton Sustainable Real Assets Dividend ETF (Ticker: BREA) is an actively managed, globally focused solution with exposure to companies real assets-oriented companies operating in real estate, utilities, infrastructure, and natural resources segments.
The portfolio manager utilizes top-down analysis to identify attractive sub-sectors and employs rigorous fundamental analysis, including the integration of ESG factors, focusing the portfolio on well-positioned, large-capitalization real assets issuers. As an additive, the primary strategy is also completed with a proprietary covered call options program to enhance monthly income.
In looking at the recent performance of the ETF, on a year-to-date and 1-year basis, its return has been truly compelling. As gleaned from the following chart, despite the drop in performance that occurred in August 2024, the strategy has proven effective thus far in the year.
Takeaway
For investors looking to bolster their portfolio with tangible assets, the investment opportunity set is large and has the potential to complement the existing holdings within one’s portfolio. BREA is a solution that provides globally diversified exposure across the real asset landscape, allowing investors to gain comprehensive exposure to various investment offerings within a single, turnkey solution.
Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.