What Are Real Assets?
Real assets are investments in physical or physical-backed assets — property, infrastructure, commodities, and land. They are distinguished from financial assets (equities, bonds) by their tangible, physical nature and the inflation-linkage that comes with it.
For international investors, the real assets category within a portfolio is distinct from direct property investment (which is addressed in the property section). It includes:
- REITs (Real Estate Investment Trusts): Listed vehicles providing exposure to income-generating real estate through a tax-transparent, dividend-distributing structure.
- Infrastructure funds and investment trusts: Exposure to physical infrastructure assets (roads, utilities, energy, data).
- Commodity funds and ETPs: Exposure to gold, oil, agricultural commodities, and broad commodity indices.
- Farmland and timberland funds: Specialist allocations to agricultural and forestry land.
The common thread is inflation sensitivity: real assets tend to maintain their value — or appreciate — when price levels rise, making them valuable portfolio components during inflationary periods.
REITs: Listed Real Estate Exposure
REITs emerged in the US in the 1960s and have since spread to most major economies. The key structural feature is tax transparency: a qualifying REIT pays minimal corporate tax, instead distributing most of its income directly to shareholders, who are then taxed at their own marginal rates. This prevents the double taxation that would otherwise apply to real estate held through a regular corporate structure.
What REITs own: The property types held by REITs are diverse. Traditional categories include office, retail (shopping centres and high streets), residential, industrial/logistics, and hotels. Growth categories in recent years include data centres, healthcare facilities, self-storage, and cell towers — reflecting the broadening of real estate as an asset class.
REIT dividends and income characteristics: Because REITs distribute 90%+ of taxable income, their dividend yields are typically higher than those of ordinary equities. Major REIT indices have historically yielded 3–5% on a dividend basis. Total return (dividend plus capital appreciation) has been competitive with broad equity indices over long periods, though with higher sensitivity to interest rates.
US REITs for international investors: The US has the world's dominant REIT market, accounting for roughly 60–70% of global listed REIT capitalisation. US REITs offer exposure to sectors unavailable in other markets. However, non-US investors face significant withholding tax on US REIT dividends (see FAQ above). Accessing US REITs through an Irish-domiciled UCITS REIT ETF reduces — but does not eliminate — withholding leakage, as the ETF benefits from the Ireland-US treaty rate.
Global REIT ETFs: UCITS ETFs tracking the FTSE EPRA NAREIT Developed index or similar provide broad global REIT exposure in a single instrument. These are the most practical access route for most international investors seeking liquid listed real estate exposure. TERs for global REIT UCITS ETFs are typically 0.20–0.40% per annum.
Infrastructure: Income with Inflation Linkage
Infrastructure assets — physical systems providing essential services — share several characteristics that make them attractive for portfolio inclusion:
- Predictable, long-term income: Regulated utilities, toll roads, airports, and contracted renewable energy plants generate income streams with long durations, often 20–50 years.
- Inflation linkage: Many infrastructure contracts include explicit inflation escalators. Regulatory pricing frameworks are often linked to CPI or RPI.
- Low competition: Infrastructure assets are typically natural monopolies or oligopolies — building a second motorway alongside an existing one is rarely economic or permitted.
- Defensive characteristics: Demand for essential infrastructure (water, electricity, gas, roads) is relatively inelastic — usage does not collapse dramatically during recessions.
Listed infrastructure investment trusts: On the London Stock Exchange, a substantial number of infrastructure investment companies and investment trusts provide exposure to global infrastructure portfolios. They have historically offered dividend yields of 4–7%. They are accessible as ordinary listed shares.
However, listed infrastructure proved significantly sensitive to the 2022–2023 interest rate rises. Infrastructure investment companies were re-rated downward as higher bond yields reduced the relative attractiveness of their income streams. Many traded at substantial discounts to net asset value, which may represent either opportunity or persistent re-rating depending on the outlook for rates.
Unlisted infrastructure: Institutional-grade infrastructure — direct stakes in airports, pipelines, or renewable energy portfolios — is accessed through unlisted infrastructure funds with typical minimums of USD 5–25 million and 10–12 year lock-ups. It has historically demonstrated lower correlation with listed markets and smoother returns because assets are valued periodically rather than daily. Access for private investors is via specialist platforms or private banks.
Commodities: Diversification and Inflation Protection
Commodities — physical goods with standardised specifications traded in global markets — include:
Energy: Crude oil, natural gas, refined products. Energy prices are highly volatile and driven by geopolitical supply factors as well as demand. Oil is a dollar-denominated commodity, giving non-USD investors additional currency exposure.
Metals: Gold and silver (precious metals with financial uses), copper, aluminium, nickel (industrial metals whose prices are closely linked to manufacturing activity and infrastructure spending).
Agricultural: Wheat, corn (maize), soybeans, coffee, sugar, cattle. Prices are driven by weather, crop disease, supply chain factors, and biofuel demand. Highly volatile and less suitable as a core portfolio holding.
Broad commodity indices: The Bloomberg Commodity Index, S&P GSCI, and similar indices provide exposure to a basket of commodities, reducing single-commodity volatility. UCITS ETFs tracking these indices (such as iShares Bloomberg Commodity UCITS ETF) are accessible to international investors at modest cost.
Gold as a specific asset: Gold warrants separate treatment as a distinct portfolio element — see the dedicated gold guide. In brief, gold has zero industrial cash flow and zero yield, but historically acts as a store of value, hedge against USD weakness, and tail-risk asset during systemic financial crises.
Farmland and Timberland as Alternative Real Assets
Agricultural and forestry land has been increasingly recognised as a distinct real asset class, following the lead of major institutional investors (US endowments, pension funds) who have allocated to farmland since the 1990s.
Farmland return drivers: Income from land lease payments (cash rents) or crop share arrangements, plus long-term appreciation in land values. Historically, farmland has delivered real returns with low correlation to financial assets and meaningful inflation linkage (farm rents and crop prices tend to rise with food inflation).
Timberland return drivers: Income from periodic timber harvests (which can be timed to coincide with favourable prices — stored carbon in trees can defer harvest), plus long-term land appreciation. Timberland has biological growth as an additional return component — trees grow regardless of market conditions.
Access for international investors: Farmland and timberland are most practically accessed through specialist fund managers. In the US, managers such as TIAA, Manulife Investment Management, and Nuveen manage substantial farmland and timberland funds, though access for non-institutional investors has historically been limited. In Europe and Australasia, similar specialist managers exist. Platforms that facilitate individual investor access to farmland (such as Farmland LP in the US or similar structures in the UK) have lower minimums but are more concentrated.
Correlation Benefits and Portfolio Construction
The appeal of real assets in a diversified portfolio rests partly on their historical correlation properties:
- Real assets have generally lower correlation with equities than bonds do, and lower correlation with bonds than equities do, providing genuine diversification.
- During inflationary periods, real assets have historically maintained or grown in value while bonds have declined in real terms.
- Unlisted real assets (infrastructure, farmland) show particularly low correlation with listed markets, largely because they are valued infrequently (smoothed pricing), though this smoothing also means drawdown risk is less visible in reported figures.
Allocations to real assets within a portfolio of 5–15% are typical for internationally mobile HNW investors seeking inflation protection and diversification from financial assets.
This guide is for general information only and does not constitute regulated investment advice. The value of investments can fall as well as rise and you may get back less than you invest. Real asset investments, including REITs and infrastructure funds, are subject to interest rate risk, market risk, and currency risk. Past performance is not a guide to future returns. Tax treatment, including withholding tax on REIT dividends, depends on individual circumstances and the laws of multiple jurisdictions, which may change. Always seek independent regulated advice before making investment decisions.
How Global Investments can help
Global Investments advises internationally mobile HNW investors on real asset allocation — from REIT ETF selection and withholding tax planning to infrastructure and farmland access. We help clients incorporate real assets appropriately within their overall portfolio framework, taking account of currency, tax, and liquidity considerations. Contact us to discuss real asset strategy.
Frequently Asked Questions
What is a REIT and how does it distribute income?
A REIT (Real Estate Investment Trust) is a tax-transparent listed vehicle that owns income-generating real estate. To maintain REIT status, most jurisdictions require REITs to distribute at least 90% of their taxable income as dividends to shareholders. This creates predictable, high dividend yields — typically 3–6% for major REITs — but also means REITs are highly sensitive to interest rate changes, as their income streams are valued relative to bond yields.
What withholding tax do US REITs pay on dividends to non-US investors?
Dividends from US REITs paid to non-US investors (non-resident aliens) are generally subject to 30% US withholding tax. Under applicable tax treaties, this may be reduced — commonly to 15%. REIT dividends attributable to US real property gain are subject to FIRPTA withholding (Foreign Investment in Real Property Tax Act) at 21% (the rate was 35% before 2018). This makes direct US REIT investment significantly less tax-efficient for non-US investors than for US taxpayers. Investing through an Irish UCITS REIT ETF can reduce (but not eliminate) this withholding leakage.
Do real assets genuinely protect against inflation?
In theory, real assets protect against inflation because their underlying value — physical property, commodities, farmland — should appreciate with price levels. In practice, the inflation-protection relationship varies: commodity prices are directly linked to price pressures; REIT income may have contractual inflation linkage through indexed rent reviews; infrastructure returns are often contractually linked to CPI. However, listed real assets are also sensitive to interest rates, meaning rising inflation accompanied by rising rates can suppress their prices despite the underlying inflation linkage.
What is the difference between US REITs and global REITs?
US REITs dominate by market capitalisation — the US has the world's largest and most liquid REIT market, covering sectors from residential and office to data centres and cell towers. Global REIT indices (such as FTSE EPRA NAREIT Global) include REITs from the US, Europe (UK, Germany, France), Asia-Pacific (Japan, Australia, Singapore), and elsewhere, providing geographic diversification. Non-US REITs have varying withholding tax rates and regulatory standards. Investing via a global REIT UCITS ETF provides the broadest diversification with a single instrument.
How do commodity ETFs generate returns?
Commodity ETFs generate returns through several components: the spot price return (changes in the commodity's cash price), the roll yield (the return from rolling futures contracts from expiring to next-dated contracts — this can be positive in 'backwardation' and negative in 'contango'), and collateral return (interest earned on cash collateral backing futures positions). Physical gold ETFs are simpler — they hold gold directly, so the return is purely the gold spot price movement minus custody costs.
This guide is for general information only and does not constitute financial advice or a personal recommendation. The value of investments can fall as well as rise and you may get back less than you invest. Past performance is not a guide to future returns. Tax rules, investment regulations, and the availability of specific investment vehicles change — always verify current rules and seek advice from a qualified independent financial adviser before making any investment decisions.