A real asset is a non-financial asset that represents a real consumer right. It can be tangibleorintangible. The opposite is traditional financial assets (for examplestocks orbonds ).
Its use as an alternative investment is frequent due to its uncorrelation (or negative correlation ) with the evolution of the prices of traditional financial assets, in addition to providing the investment portfolio with a diversification effect, that is, in short, less risk. They are used by hedge funds or mutual funds to invest in this asset class. As I mentioned, these investments reduce risk significantly without hardly modifying the expected profitability of the portfolio.
The alternative investments are often much more illiquid than investments in traditional financial assets. This illiquidity is directly associated with securities that are traded infrequently and / or have a low level of trading volume, which is why it is also difficult to estimate the potential profitability. It is very normal in this type of assets to find few market makers and participants who make prices move through negotiations (via supply and demand ). Due to the low uncertainty about the profitability of these assets and their illiquidity, investors demand higher returns as a way to compensate for these risk factors.
Real asset types
Real assets include real estate, land, infrastructure investments, and intangible assets.
- Real estate:Historically, real estate investment (includes real estate, plots, lots, commercial premises, etc.) has been the main asset class in the hands of individual investors, especially in Spain. Although in recent years investment in stocks and bonds has been gaining weight, supplanting real estate as the most important assets in the portfolio.
- Land: Includes land and trees (eg wood) that are used to create forest products (wood and paper). After all, the underlying investment of this type of real asset takes the form of real estate.
- Infrastructure: Includes government-controlled toll roads, utility companies, airports, seaports, and other real assets. Investments in infrastructure represent assets (collection rights) against the cash flows generated by these assets, either through securities created during infrastructure privatization operations or new privately financed infrastructure projects.
- Intangible assets: They include intellectual property or copyrights, patents, trademarks, etc.