Real Assets
Definition
Real assets are physical or tangible assets that have intrinsic value due to their substance and utility. Common examples include real estate, infrastructure, commodities (like gold or oil), and farmland. Unlike financial assets, which derive value from contractual claims, real assets have value derived from their physical properties and their role in the economy.
Why It Matters to Investors
- Often provide a hedge against inflation
- Can generate income (e.g., rent, tolls, royalties)
- Low correlation with traditional equities and bonds, offering diversification benefits
- Subject to unique risks such as regulatory constraints, physical damage, or operational costs
- May be illiquid or difficult to value accurately
The TiltFolio View
Both TiltFolio systems include real assets indirectly through highly liquid ETFs, primarily through gold and commodity exposure. While we recognize the historical value of real assets as an inflation hedge and diversification tool, TiltFolio Adaptive applies a systematic trend-following filter to determine when they merit inclusion in the portfolio. TiltFolio Balanced includes gold (GLD) as a permanent 20% allocation to provide consistent real asset exposure.
Both systems avoid illiquid forms of real assets like private infrastructure or direct real estate ownership, which can suffer from valuation opacity, limited liquidity, and high fees. By using ETF proxies, both systems retain the tactical flexibility they are built around.
While real assets can protect purchasing power during inflationary regimes, they also endure long periods of underperformance. TiltFolio Adaptive aims to sidestep those periods entirely by rotating in only when trends turn favorable. TiltFolio Balanced maintains consistent exposure to gold regardless of performance periods, providing steady real asset allocation.
Real-World Application
• An investor buys a gold ETF as a hedge against central bank policies
• A pension fund allocates capital to a farmland REIT for diversification
• A family office purchases direct stakes in toll roads or power infrastructure