UK professional investors are looking to increase their allocation to real assets over the next year, according to new research by TIME Investments.
Over three-quarters (76%) of the 200 financial advisers and fund managers interviewed aim to up exposure to real estate, while 74% expect to add infrastructure assets to their portfolios over the coming 12 months.
Many respondents (67.5%) said reducing risk through diversification was their main motivation for the move, with 60.5% intending to increase focus on ESG and 44.5% seeking secure income streams.
These may have been the leading motives, but TIME fund manager Andrew Gill said a generally pessimistic economic outlook was the main reason for this migration to real assets – an asset class historically seen as a ‘safe haven’ during times of uncertainty.
The majority (70%) of those surveyed anticipate challenging market conditions that will not improve within the next year.
“We share the view of advisers that uncertainty and volatility is likely to persist,” Gill said. “However, we are seeing values stabilise in most real estate and infrastructure sectors and the reduction in bond yields seen in late 2023 should support this further.”
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While conditions could remain rocky over the short-term, lowering inflation could lead to eventual interest rate cuts by central banks, Gill added.
Inflation in the UK is well above the Bank of England’s 2% target, but has dropped significantly from its highs of 11.1% in October 2022, reaching 4% in December last year.
There are these glimmers of hope to look forward to, but continued volatility over the short term could fuel ongoing interest in alternative assets. The vast majority (97%) of investors expect lower volatility and more stable returns from real assets during times of economic uncertainty.
Gill said: “With economic growth likely to remain subdued, sectors with robust and growing cash flows, such as real estate and infrastructure, are likely to outperform over the long term. Growing cash flows should also continue to fuel income and dividend increases in most real asset sectors.”
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