369. How real assets can outperform in uncertain times

2 October 2025 (pre-recorded 25 September 2025)

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[INTRODUCTION]

Staci West (SW): Welcome back to the Investing on the go podcast brought to you by FundCalibre. From global real estate and infrastructure to commodities, our guest breaks down how these diverse investments provide inflation protection, portfolio diversification, and strategic opportunities in today’s complex environment.

Chris Salih (CS): I’m Chris Salih, and today we’re joined by Vince Childers, manager of the Cohen & Steers Diversified Real Assets Fund. Vince, thank you for joining us once again.

Vince Childers (VC): Hey thanks for having me.

[INTERVIEW]

CS: No problem at all. Let’s start just with your view that you’ve talked about recently that, you’ve argued that real assets are very important in today’s macro environment. Now obviously there is a lot going on at the moment. Maybe just for listeners who perhaps aren’t aware of everything, could you maybe just start by explaining what you mean by real assets? Why this on matter right now? And also, there’s a lot of markets that are very fairly valued at the moment. Maybe just talk us through the valuations of those assets as well.

VC: Yeah, so I mean, look, if I zoom way out, most of the time when we talk about real asset investing we’re gonna be primarily focused on opportunities available in sort of the listed exchange traded markets around the world. We sort of think about real assets as this pretty diverse category of investments spanning a lot of different securities industries and sectors.

But when we roll it all up, it usually boils down into kind of four major food groups, so to speak. Right. So you’ve got your global real estate investments, so REITs and owners and operators of commercial real estate. And as one we like exposure to commodity futures as well. And we can talk a little bit about the role of commodity features in a portfolio. And then other equity investments include resource equities, so in energy related companies metals companies and agri-business, agriculture related equities.

And then finally listed infrastructure globally. So you know, this, there you’ve got sort of everything from utilities to midstream energy to airports, marine ports, toll roads, et cetera. So it’s a pretty broad group of investments, but what we think they kind of bring to the portfolios is one inflation sensitivity. Right. Something I think we can come back to if we need to talk a little bit, flesh that out a little bit, but basic idea would be, hey, these are assets that tend to, you know, outperform, you know, bonds and stocks in environments when inflation is shocking to the upside.

CS: You mentioned it on inflation. I mean, essentially that is the sticky thorn in markets, particularly in the UK. Maybe just explain before we talk about valuations, just just how that affects those sort of areas of the market, those four sub-sectors that you mentioned. Is it a case that they, you know, in certain areas that could be passed on? Just how do they operate in an inflationary environment?

VC: Yeah, I mean, look, I think pretty reliably what you see and we’ve done research on this internally, have not yet published on it. I’m sort of, we may do it, but the idea would be, look, there are a lot of different sources of inflation shocker, inflation surprise. And I guess maybe I should just back up for a second and say the, when it comes to kind of moving asset prices in some kind of abnormal or unusual way, hopefully not surprisingly right, it’s the surprise that kind of gets you, it’s the surprise that gets asset prices moving. Where you can look and say there’s some kind of consensus expectation built into surveys or market prices or something like that. Some that some view on what inflation may be over the next 12 months.

And historically what you see is that, if inflation say comes in above that expectation over the course of 12 months, particularly in some meaningful way, right? It usually is not very good. For stock and bond returns below average to sometimes outright negative and relatively more favourable for those four groups I talked about.

Right now, in terms of, your question about how are they sensitive regardless of the source of inflation, and this comes to what I was gonna say about what we haven’t published on is we’ve actually taken inflation surprises and broken them down to not just headline and core drivers of inflation, but also sort of was this inflation and supply shock driven or due to some kind of upside shock to demand. And when you kind of peel that back, what you see is that effectively it’s really only in kind of a core demand world where something like your a broad equity portfolio actually looks pretty decent.

Okay. When most of the other environments, the real assets, at least diversified as we’ll talk about across, say, those four groups will tend to outperform. And pretty reliably it’s commodities that do the best job. So a lot of times people get to start thinking, well, you know, commodities, it’s food, energy, headline inflation, maybe it does, maybe commodities don’t go up if you get some other sort of adverse supply shock that has something to do with core components that drive CPI indices and so forth, that turns out to be just empirically not true.

And so one of the reasons that we in our research and the way we build our portfolios have a healthy allocation, a sort of healthy permanent allocation to commodity futures is because of that large and reliable inflation sensitivity. It’s sort of we take the view that it’s very hard to predict how inflation’s, shocks are gonna unfold because by definition they’re shocks, they’re unexpected. And so you want something that tends to perform pretty well regardless of what’s generating that inflation. And there you get commodities and to a lesser extent, sort of the resource equities.

CS: Okay. I’m gonna come back to the sort of correlation with bonds and equities in a moment. Just quickly on valuations, because a lot of equity markets are fully valued at the moment, would you say and maybe we don’t need to take them one by one, but how would you value, how would you see the markets at the moment, those areas of real assets? Would you say they’re all fairly valued or are, is there still quite a bit of upside there?

VC: Yeah, look, I mean, just to tackle the first part of what you said, I think at this point, everybody kinda has, or hopefully has a feel for it, but take something like the MSCI World index, right? A, you know, approaching 30% of that index, let’s call, or maybe it’s 25, 26, 27%, something like that at last check, right? Is basically the US equity market, but you drill down into the US market you know, 40% of that cap is in the top 10 names. Yeah. Right? And those 10 names on one way or another are pretty much wrapped up in very similar sort of tech AI driven type themes, right? They’re in that same kind of ecosystem. And you know, we have kind of historically stretched multiples. So that’s what we see, say from a valuation perspective in the broader market, you look at something like PE right?

Cyclically adjusted earnings, it looks really off the charts because sort of say trailing 12 month recent year, PEs are sort of you know, they’re still historically very high, but they don’t look as bad because margins have gone up. ROE has gone up. And so you get something that doesn’t look quite as stretched as you see on something like a cyclically adjusted PE in any event, almost by pretty much any measure, right?

The markets look pretty stretched and they look that way because of the concentration in, you know, mega-cap US tech names. Yeah. I think that’s a story everybody’s familiar with. The flip side of this for my assets, is it, one of the ways we look at it is kind of in our models, which from a tactical sort of allocation perspective, sort of how we deal with assets on a day-to-day basis, we have a model that looks back to kind of the early two thousands, really almost all the way back to the late nineties, basically sort of a modern era model.

And we can judge sort of those values, today’s valuation multiples against that long term data or shrink it up to the last 10 years or so. If you think that’s too deep a history, you get basically a very similar looking outcome. And it looks like our assets look dead on average-ish, right? Okay. In a world where the broad equity market that dominates most people’s portfolio looks basically, you know, 95th to a hundredth percentile on virtually any valuation metric you choose to look at. And so I sort of say we’re always gonna be dealing with with, you know, what’s the available sort of risk premium in the markets, how thin is it, has it gotten? And another way saying how expensive are valuations? Our assets don’t look particularly expensive. And look in large parts because they have on the whole not particularly participated in the run-up that has created this level of concentration and valuation.

CS: And just in terms of quickly, and you mentioned those four assets, again, the infrastructure, real estate, commodities, natural resources, you know, how does combining them offer you that natural diversification? I mean, 2022 is a good example of where people said the 60/40 of equity and bonds doesn’t work. How historically have these assets, the combination of these assets offered you or offered your clients that diversification that they need through those challenging periods?

VC: Yeah. So to answer that, let me go back to sort of the inflation story, because that’s really only one way we think about this, right? Is it is, I kind of think of that the negative inflation sensitivity that’s built into the equity and fixed income pieces that dominate pretty much everybody’s asset allocation exercise as say something like the first half of 2022, just to give a a concrete example, inflation surprises and inflation itself was sort of peaking, say in the first half, second quarter or so of 2022. At that point when you had this peak, if you look back on a year over year basis, you had, you know, MSCI World was in negative territory. Pretty much every fixed income instrument in the developed world was in negative territory.

But something like you know, say the benchmark for our strategy was up nearly 20% at the same time. Okay. Okay. And just if you wanna pick a point where the shock was kind of at its peak by our measure right now, what you see under the hood was something that’s not surprising to me, and that is that what was performing the best, again, was commodities, right?

Below that were the natural resource equities, then infrastructure, and then real estate. All were outperforming stocks and bonds, but they sort of cascaded down in that order with then and among each other. Okay. That you know, I looked at this as kind of a classic stagflationary scare and historically something like that order of performance is basically central tendency, right? It’s rare for me, it’s rare to see something where the actual outcomes, so neatly track kind of long-term historical averages.

So I think about one, understand the differences in inflation sensitivity within and among these assets, right? Say the difference between say, real estate and commodities. Now, most people also are not interested just in inflation sensitivity to the assets. Ideally, you want something in the portfolio that even outside of inflation is just on average diversifying. Right? So, you know, as a first order, I kind of always say, in what ways could you build a real asset portfolio to kind of drive down the beta to equities, right? Okay. And still maintain say, a respectable inflation sensitivity.

Well, there you get kind of a flip side or you get sort of the a story that says, well, commodities have a pretty low equity beta, they another thing in their column. But, and so does infrastructure relatively speaking despite its kinda lower inflation sensitivity, but, you know, resource equities and real estate will tend to have that kind of higher equity beta, right? Okay.

And so you kind of, you have to say, well, there’s a trade off there about how diversifying are these assets vis-a-vis sort of stocks and bonds. But then the final component is, well what do you, what do we expect in terms of long term risk adjusted returns outta these assets? And this is where, so far you say, well, commodities sound great except for you investors have historically had to pay for the diversification benefits and for sure the inflation sensitivity, and they’ve paid that price with kind of lower risk adjusted returns, right?

But take something like real estate with its sort of lower inflation sensitivity has generated a whole lot of historical return, right? And so what we are always doing is kind of is thinking about all of these asset categories come with trade-offs across this inflation diversification and return, you know, risk/return dimensions. And we’re really, what we really think serves people the best is trying to build portfolios that’ll get you pretty solid outcomes across all of them.

CS: Right. Well, that was gonna be just quickly my follow up. Just quickly in terms of that correlation with equities and what about when you feel the real heat? So I’m thinking COVID, I’m thinking maybe, I dunno if Liberation day, I’m thinking something like Brexit over here. Are there times when things just all go to one? And that’s probably an opportunity for you as much as it is for the equity markets.

VC: So here’s what I’ll say. I think the easiest way to think about this and you know, the most straightforward way to frame it up is that the work, if we’re talking about basically anything that’s a risk asset, right? That’s out there that our portfolio is meant to generate a pretty respectable risk adjusted return with let’s say a sort of low to low teens say long-term volatility, just to give a feel for where we are. So not a fixed income, not a bond portfolio. So there’s a healthy return goal in built into a strategy like ours. Well, here’s what gets you right, if inflation is shocks to the downside and economic growth shocks to the downside, and you move into a recession or some kind of stagnation environment, everything with a risk premium attached to it is going to get sold.

Then it’s just a question of what’s worse. What I tell people is, look, this is part of the reason where we think a real assets, they’re meant to compliment your stock and fixed income portfolio, because guess what works in that environment, you know, cash and high quality duration, right? High quality bonds with a little bit of duration. That’s what saves you when you get economic and inflation shocks to the downside. So you say, well, it’s in that type of environment where I’d say, yeah, everything probably goes down. Do real assets say go down as much as the broader market? It depends, right? We tend, we generally will have a lower beta right to the market just because of the way we will build our portfolios. But there, you know, if if say the disinflationary or deflationary shock was bad enough, then you could definitely even do worse in in some kind of sell off like that.

But the flip side is take something again, like the stagflationary type scenario, right? That’s the scenario where, well guess what, pretty much everything that you have, stocks and bonds goes down at the same time, stocks and bonds are failing to diversify each other, and real assets will tend to shine in that environment. Okay? And so if you think about in this kind of regime framework, right, where growth could be surprising one way and inflation could be surprising. The other in most cases, real assets perform differently than stocks and bonds and don’t have, you know, this sort of higher beta. But it admittedly right, is when, I guess one way to think about it’s in the world where the only thing that’s working is your bonds, real assets probably aren’t gonna work either, right?

CS: Let me just touch on one specific real asset, the commodity side. I just want your view on that quickly. I mean, do you view it as a tactical play? Is it strategic long term asset allocation? I’m thinking of something like gold at the moment, which is soaring to god, what was it, 3,700 or something yesterday? Something along those lines. Probably be 4,000 by the time this comes out. Just talk me through that. Is that something that is a long-term hold or do you pull it right back when you need to?

VC: No, so we have a kind of, if you were to look through our strategy, you’d see that we publish a blended custom benchmark. That benchmark is meant to reflect kinda what we think is the best of the real assets universe that should be held as a long-term strategic investment. That benchmark is heaviest in commodities plus more gold than what you even get in say, a Bloomberg commodity index. So we actually add a little bit more gold into our strategic construction, and it’s kind of barbelled with real estate and to some of the points I’ve I was making before is strictly speaking real estate and commodities tend to diversify each other best.

And so there are a lot of advantages in building a real asset portfolio if you kind of barbell those two and then fill out the rest of your portfolio with, you know, infrastructure and, and say resource equities. Okay. But we do see it as a long-term hold. Now what we do practically speaking, because we’re active managers on a day-to-day basis, I’m gonna make decisions in the portfolio to go overweight or underweight versus those kind of static benchmark weight. Right?

CS: So gold is the gold is obvious thing. I mean, did you take a deep breath when you look at that or do you think

VC: We’ve been overweight, so you know, a little bit and that’s helped us from an allocation perspective, obviously in generating performance this year. What worries me about gold, it is that, and not to get a little bit nerdy here, but I think, you know, people can track me hopefully, is if I look at the history of gold returns and I wanna take other variables to help explain that return, right? Let’s say the most obvious one would be, well, what happened to the dollar? Right? If the dollar goes down, people say, well, generally that’s good for gold, right? Or if real interest rates go down, well, generally that’s good for the gold return. These things are true, they hold up in the statistics. So you basically say, well, if I had perfect knowledge about where the dollar was gonna go over, say the next six to 12 months, and perfect knowledge about where real interest rates were gonna go over the next six to 12 months, that helps to explain gold returns, right?

On a kind of coincident, contemporary contemporaneous basis. But here’s the problem, it doesn’t explain a whole lot, right? Yeah. So gold is just this very noisy asset, right? That’s hard to explain the returns through time. And so if you’re in my seat where you say, well, we don’t need to explain it, we need to try to forecast it or predict it, we need, my view is we need to be humble. So I would say gold is one place in the portfolio where we tend to sort of hold that a slug in the portfolio and kind of stick to it, and we may end up overweight, you know, a hundred or 200 basis points versus that, right? Because we have to admit that, you know, how could we possibly fancy ourselves, good forecasters if it’s hard enough to just understand it if you had perfect knowledge. Hopefully that makes sense.

CS: Yes, I think so. I wanted to quickly ask you about performance just to maybe just spend a minute on that. How do you see it pros and cons, maybe on the performance of the portfolio?

VC: So just to be clear, performance of the portfolio, sort of on a relative active basis or just how the assets are shaking out?

CS: Let’s not start with the active basis and because we’ve talked about some of the assets underneath. Maybe we can just go into them afterwards.

VC: Yeah. So look, I maybe what I’ll do is explain how do we think about alpha generation? Yes. Hey, if we start with this philosophy or this view that, hey, we’ve assembled this benchmark, we make it public, my view would be if someone just wanted to kind of copy that and they were disciplined and they stuck with it and had some kind of passive exposure, I think you’d have a pretty good real asset portfolio. We sort of give that bid away for free, right? So our job is to go beat that, to add value above and beyond it. The way we do that is through bottom up security selection primarily, right? So we are a real assets focused firm and so we maintain teams and expertise and all of our resources geared toward outperforming in those four major groups. That’s about 80% of in the long run that we think of our alpha generation could, should come from, say the summing up of all of those con contributors from the security selection perspective, that leaves say, 20% of our active risks to come from more kind of top down decisions.

Meaning, you know, hey, would I rather be overweight resource equities and infrastructure and funded it by being underweight commodities and real estate as an example. Those types of decisions maybe get 20% of sort of the risk budget to answer your question. I think have a respectable long history of generating outperformance, right? There aren’t a lot of people, I think as focused and plowing as much of our resources into this particular job as what we’re doing. And so we have, I don’t know, 1, 3, 5, 10 years. I mean, I think you find we beat our benchmarks.

The second question, you know, how about the assets under the hood there? I would say, you know, in the last kind of year or so and year to date in particular, it’s probably a little bit surprising to some people, or at least I’ve found it, in meetings and talks I’ve done recently, is that some of the best performing assets in the portfolio on a year to date basis have been on the resource equity side.

And on the infrastructure side, so in resource equities we have the say miners have, are quietly up over 40% or so for the year. And, and that’s been a substantial driver for for the resource equities piece of the portfolio. So much unloved cap in terms of, you know, cap weight in terms of pretty much any index you look at has shrunk and shrunk over time. But this, these assets have actually been performers for us. Similarly, infrastructure has done, you know, pretty well kind of kind of mid-teens up for the year or so and the weaker have been sort of commodities and real estate around 9% or so a piece. Right? But point is there’s dispersion, right? And there always is under the hood of these assets.

You know, fortunately for us, you know, I’ve been overweight the resource equities, the infrastructure and the gold year to date. And so that’s been in funding it from real estate and commodities, that’s been the right call has added value. And so that gets up our portfolio up, you know, I wanna say north of 13% or so. Right. Okay. So, you know, being able to add that alpha on top of these other assets has been advantageous for us.

CS: I’m gonna ask you in a line or two, because people who may already own property funds will be saying to me, or listening to this and going, well, how do real assets differ in terms of accessibility and liquidity? What would you say in a line or two to explain the difference from that to investing just in a property fund in terms of how that works?

VC: Yeah. I mean, look, there’s a couple of different ways I think about this. We’re primarily focused on listed markets, right? Yeah. I think the main thing that gives pause to some investors who are accessing a lot of property funds part, you know, where especially where they have sort of private opportunities is measured volatility, right? It looks like things aren’t risky, okay?

What my view is much more agnostic. I sort of say, I’m sitting in you know, a skyscraper in midtown Manhattan right now, the economics of this building are, you know, on the whole, not particularly dependent on whether or not it’s owned by a publicly traded or privately traded entity, okay? The risk of this business is in, of this building or this piece of property is a function of its fundamentals, not a function of how it’s owned Now ownership creates an illusion that maybe there isn’t as much risk, but the longer you hold the property, right?

And the longer, you know, you’re subject to needing to say, get in and outta that portfolio. To your point about liquidity, the more, not surprisingly, I hope, values converge, right? And returns converge. And so what I’ve said is I don’t really think that there’s necessarily a problem with a sort of private holding as long as folks realise that volatility is not risk, you’re just seeing sort of an illusion of day to day market as opposed to infrequent and sometimes even actuarial kind of marks, right? And so think about the economics of what you’re dealing with, not sort of the ownership structure. And so when we think about global real estate in something like our piece of the portfolio, well, it is a very quick way to get exposure to the entire global listed real estate universe across all of your relevant sort of sectors and industries. Right?

CS: And just lastly and quickly, so I’m assuming AI influences your world as well, just quickly align on that. And then also, are there any other sort of mega trends that are getting involved in that market?

VC: Yeah, I mean, look on AI, this actually ties into something, a theme we’ve talked about in publications in recent years is the most obvious is demand for sort of the data intensity. That’s associated with the AI boom data, you know, data centres and such, right? So data centres are in real estate indices, right? And are healthy component of it, but there’s also the power demand behind all of this. And so we’ve talked about sort of the environment of resource scarcity and what we’ve characterise as sort of the energy addition, right? The need for you know, more of everything we have in terms of energy plus everything we can get from renewables and that power generation need is only increased, you know, the more that the AI has taken off, okay?

I mean, ultimately, right? If we, the numbers that are being talked about is $3 trillion of AI related capital investment through 2030. These are staggeringly large numbers for an investment. And so, you know, these things need to be built. They need to be powered. And so we touch that world. Our real assets will touch that world in that way from sort of that investment side sort of build out and power generation, you know, other things that impact us that are a little bit different, but maybe tied to the resource scarcity argument is that through much of kind of the mid 2010s we were living through the tail end of a big commodity CapEx boom that you know, in many places ended up disappointing not generating the economic returns that were, you know, that justified the investment that people wanted.

And that discipline supply behaviour. We’re now in a world where there isn’t a lot of appetite to build out to build out new supply across a whole lot of commodities. Right? So another way of kind of thinking about it is your commodity producers by and large have, you know, got religion after that period and are very focused on their own ability to generate returns on invested capital. And that keeps us from Gluts, but sets up the a com, a potential underinvestment cycle where, hey, we could have demand supply gaps that create risk to the upside on the commodity side just due to that resource scarcity. So I won’t go on there, but we’ve also published on this, we sort of characterise it as the era of scarcity, and there’s as opposed to what we thought of as the post GFC, pre COVID kind of era of abundance.

CS: On that cheerful note, the era of scarcity. I’m gonna finish it there. Thank you very much for your time, Vince.

VC: Alright, well thank you for having me. Hopefully some of this was helpful and I appreciate the time.

CS: It was. Thank you very much.

SW: While this fund is a relative newcomer to the UK market, it has the backing of Cohen & Steers’ depth and breadth of expertise. It offers investors a single destination for a range of inflation-protecting assets, built with an eye on diversification, as well as returns. For more information on the Cohen & Steers Diversified Real Assets fund, please visit fundcalibre.com