Investments in real estate and infrastructure with a stable, incoming-yielding profile can be considered low-risk. From a portfolio perspective, real assets can help achieve diversification and safeguard a portfolio against more volatile, traditional assets traded on the stock markets. Some of the key reasons why real assets are attractive additions to our investment portfolio are explained below:
Stabilised real estate assets provide a reliable stream of cash in the form of monthly or quarterly rental income for their owners, on average generating 3-5% annual return to investors. Even in times of economic uncertainty, investments in the stock market may go down in value almost immediately, but owners of properties leased out to tenants with strong credit ratings continue to benefit from rental income. A lease would be one of the last contracts any company would consider breaking due to the high legal and reputational costs associated with it. Meanwhile, infrastructure assets such as power generation plants, waste treatment plants and roads provide essential services for everyday life. Therefore, even in times of economic difficulties, demand for these services remains stable ensuring continued cash flows for infrastructure investors.
Lately, we’ve heard a lot about inflation and the increasing cost of living. A consumer price index (CPI) is one of the main determinants of inflation in a country. CPI is calculated as the weighted average of prices of a basket of commonly purchased goods and services. In addition to things like the price of food, beverages and education, housing costs are one of the main inputs in calculating the CPI. Most often, real estate rental contract rises are linked to inflation – therefore, the value of the underlying property also rises with inflation. Similarly, most infrastructure assets are underpinned by long-term contracts and the price of the service provided is set to rise in line with, or above, the rate of inflation.
Both real estate and infrastructure are increasingly seen as asset classes that can provide a positive social and environmental return. In particular, the global push towards slowing down climate change is fuelling the market opportunity for investing in renewable energy. In real estate, the growing need for affordable housing for social inclusion or the increasing demand from tenants to live and work in eco-friendly buildings, provides investors with several opportunities to invest in assets that are in line with our personal values.
Because of all the qualities mentioned above, real assets act as an effective diversification tool in an investor’s total portfolio. Investors can further benefit from diversification within real estate and infrastructure by investing across different strategies, sector/property types, and geographies.
At Hedgehog, we endeavour to provide our investors with access to real assets of institutional-quality. Our blockchain-driven investing app makes it possible for eligible individual investors to access the benefits of investing in real-world assets. Our offerings are diversified by sector, which allow investors to pick and choose between property types that they may not be previously familiar with or expand their exposure to infrastructure investments that they struggled to get access to in the past.
Technology helps Hedgehog make real assets more accessible and efficient for people to invest through digital and automatic investment processes. Hedgehog envisages an exciting future, and tokenization is the first step in giving investors access to liquidity, which would otherwise not have been available for investments like these.
Hedgehog has already secured investment opportunities in more than GBP 1.15bn of real assets, including commercial real estate, content studios, renewable energy infrastructure and more.
Sources: CAIA Association, Investopedia, Preqin
Nothing in this article constitutes financial advice or guidance. The content in this article is an opinion and is for general information purposes only. It is not intended to be financial advice. The value of your investment can go up or down so you may get back less than your initial investment.