Real Assets: Commodities, Infrastructure and Natural Resources

Real assets are investments in physical or tangible economic resources rather than financial claims. They encompass a broad spectrum — from gold bars to wind farms, from agricultural land to oil pipelines — but share common characteristics that make them distinctive in a portfolio context: their value is anchored in physical reality, they tend to provide natural inflation protection, and their return drivers differ meaningfully from those of financial assets such as stocks and bonds.

For internationally mobile high-net-worth investors seeking to diversify beyond traditional financial markets and protect against purchasing-power erosion, real assets form an important component of a truly global portfolio.

Why Real Assets Matter in a Portfolio

The case for real assets rests on three main properties:

Inflation protection: most real assets generate income or hold value that tracks inflation reasonably closely over time. Commodity prices reflect input costs that rise with inflation; infrastructure assets often have revenues explicitly linked to CPI or other inflation indices; agricultural land generates food, whose price inflates with the cost of living. This makes real assets a natural hedge against the purchasing-power erosion that conventional bonds cannot provide.

Low correlation with financial assets: the price drivers of real assets — physical supply and demand, weather, geopolitics, regulatory change — are partially independent of the financial market cycles that drive equity and bond returns. This diversification benefit can reduce overall portfolio volatility.

Scarcity value: physical assets — land, certain minerals, productive natural resources — are finite. As global population grows and incomes rise, demand for food, energy, water and infrastructure increases, providing a structural demand driver for real asset values over the long term.

Commodities

Commodities are raw materials or agricultural products that are traded globally in standardised form. They fall into several categories:

Energy commodities: crude oil, natural gas, coal, refined products (gasoline, diesel, jet fuel). Energy is the most economically significant commodity category, directly affecting inflation, corporate margins and consumer spending across all economies. Oil prices are influenced by OPEC+ production decisions, geopolitical events, the global economic cycle and the pace of energy transition.

Industrial metals: copper, aluminium, nickel, zinc, lead, tin. Industrial metals are directly tied to economic activity and construction — copper is sometimes called "Dr. Copper" because its price is considered a barometer of global economic health. The energy transition is creating structural demand uplift for several industrial metals (copper for wiring, nickel and lithium for batteries).

Precious metals: gold, silver, platinum, palladium. Gold is the most important investment commodity — a store of value, monetary hedge, and crisis asset with no industrial demand justifying its entire price level. Silver has significant industrial applications (electronics, photovoltaics) alongside its monetary history. Platinum and palladium are primarily industrial (automotive catalysts, hydrogen fuel cells).

Agricultural commodities (softs): wheat, corn, soybeans, cotton, cocoa, coffee, sugar. Agricultural commodities are driven by weather patterns, crop cycles, demand from growing populations, and biofuel policies. They are highly volatile and can be affected by events entirely unrelated to financial market conditions.

Livestock: cattle, hogs. Live animal commodities are a specialist area of limited relevance to most investment portfolios.

Investing in commodities: direct ownership of physical commodities (outside of gold and silver bullion, which can be held directly) is impractical for most investors. Access is typically through:

• Commodity futures: contracts to buy or sell a commodity at a specified price and future date. Futures-based exposure requires understanding of roll yield (the cost or gain from rolling expiring contracts into the next month, which can be a significant drag in normal markets).
• Exchange-traded commodities (ETCs): exchange-listed instruments tracking commodity prices; can be physically backed (as for gold ETCs) or synthetic (futures-based).
• Commodity index funds: ETFs or mutual funds tracking broad commodity indices such as the Bloomberg Commodity Index or S&P GSCI, providing diversified exposure across energy, metals and agriculture.
• Commodity-producing equities: shares in mining companies, oil majors, agricultural businesses. These provide leveraged exposure to commodity prices but also company-specific risk.

Commodity positions typically generate capital returns from price changes rather than income (except for energy pipelines and natural resource royalties, which generate cash yields). In backwardated commodity markets (where spot prices are above future prices), futures-based exposure generates a positive roll yield; in contango (spot below futures), the roll yield is a drag.

Infrastructure

Infrastructure encompasses the physical systems that modern economies depend on: transport networks (roads, railways, airports, ports), energy transmission and distribution (electricity grids, gas pipelines), utilities (water treatment, waste management), communications (fibre networks, mobile towers, data centres) and social infrastructure (hospitals, schools, prisons).

From an investment perspective, infrastructure assets share characteristics that make them attractive:

Regulated or contracted revenues: many infrastructure assets operate under government regulatory regimes or long-term concession agreements that determine their revenue streams. Regulated water utilities, for example, are permitted to earn a specific return on their asset base. This reduces revenue uncertainty significantly compared to corporate assets.

Inflation linkage: many infrastructure contracts include explicit CPI escalation, so that revenues rise with inflation. This provides one of the most direct inflation hedges available in the investment universe.

High barriers to entry: the capital intensity and regulatory approvals required to build competing infrastructure create significant moats. A new airport or electricity grid cannot easily be built in competition with an existing one.

Long asset lives: infrastructure assets are long-lived — a toll road or water treatment plant may operate for fifty to one hundred years. This duration matches the needs of long-term investors.

Essential services: demand for transport, energy, water and communications tends to be relatively inelastic — it does not disappear in recessions in the way that discretionary consumer spending does.

Accessing infrastructure: investment routes include:

• Listed infrastructure funds and REITs: publicly traded vehicles owning infrastructure assets. Traded at daily liquidity but introduce stock market volatility.
• Unlisted infrastructure funds: limited partnership structures similar to private equity, with ten-year-plus fund lives and locked-up capital. Used by pension funds and family offices. Provide purer exposure to underlying infrastructure returns without daily price noise.
• Infrastructure debt: lending to infrastructure projects rather than owning equity in them. Lower risk than infrastructure equity but lower expected returns.

Timberland

Timberland — commercially managed forests — is one of the most distinctive real assets. Returns come from three sources: biological growth (trees grow whether or not financial markets perform), timber harvest revenues, and land appreciation. Timberland has historically delivered returns in the 5–8% per annum real return range and exhibits very low correlation with financial markets.

The natural store of carbon in forests has also generated interest from ESG-conscious investors and creates potential revenue from carbon credit markets.

Access is primarily through specialist timberland investment managers (TIMOs) and limited partnership fund structures. Minimum investments are substantial, and liquidity is limited.

Farmland

Agricultural land (farmland) is one of the world's largest and most accessible real asset classes globally but has traditionally been difficult for institutional investors to access. Returns come from rental income from farming tenants, farm operating income, and land value appreciation.

Farmland values are influenced by crop prices, water availability, land scarcity and demand for biofuels. In some geographies — the US Midwest, UK, Australia, Brazil — farmland has proven to be an excellent long-run store of value.

Access routes include: direct acquisition (requires significant capital and local expertise), specialist farmland funds and REITS (such as Farmland Partners in the US), and newer digital platforms that pool smaller investments into farmland ownership structures.

Natural Resources: Mining, Energy Royalties and Water

Mining royalties and streaming: companies that own royalty interests on mining operations receive a percentage of production revenue or a fixed number of ounces of metal per year, regardless of the mine operator's costs. This provides commodity price exposure without operating risk. Royalty companies (Franco-Nevada, Wheaton Precious Metals, Royal Gold) are listed entities that can be accessed through ordinary equity markets.

Water rights: in water-scarce regions (the American West, Australia, the Middle East), the right to extract water is a potentially valuable and increasingly scarce asset. Investment in water rights or water infrastructure companies is an emerging area of interest.

Renewable energy: wind farms, solar farms and battery storage facilities are increasingly considered real assets rather than purely financial investments, given their long-dated, government-supported revenue streams. Listed renewable energy investment trusts are available in the UK market.

Portfolio Construction: How Much to Allocate?

Institutional investors — large endowments, sovereign wealth funds — typically allocate 10–20% of total assets to real assets. For HNW investors, a practical target might be 5–15%, depending on:

• The degree of inflation concern in the current and anticipated environment
• The investor's liquidity needs (many real asset investments are illiquid)
• Access to institutional-quality managers
• The existing portfolio's inflation sensitivity

A broadly diversified real assets allocation might include commodities (through a diversified index ETC), listed infrastructure, listed timber or farmland REITs, and gold, alongside any illiquid direct investments in infrastructure or private farmland.

How Global Investments Can Help

Global Investments assists internationally mobile clients in building real asset allocations suited to their inflation protection needs, time horizons and liquidity requirements. We provide access to institutional-quality real asset strategies — infrastructure funds, commodity strategies, natural resource royalties — and help structure investments within appropriate tax-efficient wrappers.

Our advisers work across the international markets in which our clients invest and understand how to integrate real assets within a globally diversified portfolio for clients in different regulatory and tax environments. Contact us for an initial consultation.

Capital is at risk. The value of investments and any income from them can fall as well as rise, and you may receive back less than you invest. Past performance is not a guide to future results. Real assets can involve illiquidity and complex tax considerations. This guide is for information only and does not constitute regulated financial advice. Tax treatment depends on individual circumstances and may change. Seek independent regulated financial advice before making investment decisions.