Never let a good crisis go to waste

In this February 19th edition of Liquid Real Assets (LRA) Market Update, John Vojticek and team take a look at how public markets viewed listed real assets (real estate, infrastructure, natural resources and commodities).

Click below for the full report, including our Market Commentary, Why it Matters and:

Macro Dive:

• U.S. Jobs
• Heading North
• Down Under

Real Assets, Real Insights:

• Costly Byte (Real Estate)
• High Power (Infrastructure)
• All that glitters could be gold (Commodities)

Market Commentary

Rising inflation, illustrated in the U.S. by consumers paying a dollar per egg, combined with greater inequality and crumbling trust in institutions, has contributed to an ability to accept unconventional approaches to the problems we face. For now, this passivity has also been reflected in financial markets which have been orderly in the face of constant headlines and rumors, with the latest being the “Mar-a-Largo accord.” The rumor is a flyer by the U.S. administration to potentially rework the global financial system. The restructuring would be partly facilitated by having holders of U.S. Treasuries swap their holdings into ultra bonds (100-year maturity) to re-profile the U.S. debt load, lower borrowing costs, weaken the U.S. dollar, and tilt the terms of trade back in favor of the U.S. This news reaffirms the administration’s willingness to shake up financial markets in addition to structurally changing politics and commerce. Doing his part, the U.S. Treasury Secretary Scott Bessent outlined his 3-3-3 plan to focus on deficit reduction, gross domestic product (GDP) growth, and energy independence. However, Bessent faces an uphill climb as the budget deficit has averaged over 6% since 2010 and real GDP growth has only averaged 2% annually over the same time period.

Global equity markets had a decent week of performance for the period ending February 19th. Companies in the Technology, Energy, and Industrial sectors led performance, while those in Health Care, Consumer Staples, and Real Estate lagged.? Among some indicators we track, the VIX, an index of expected S&P volatility, inched down 4% to 15.3. U.S. inflation breakeven yields rose 1 basis point (bp) for the 5-year segment and fell -1bp for the 10-year segment. The U.S. dollar weakened marginally, ending at 107.2 for the DXY index, an average of the dollar’s performance against major peers. Investment grade credit spreads tightened 1bp and high yield spreads were unchanged. Oil prices moved up to $72.25/barrel. Gold prices continued to climb, up $29 to $2,933/ounce on continued tariff threats. To illustrate this, the U.S. received a record total of 193 metric tons from Switzerland, Europe’s main refining hub, in January. This was the highest figure going back to the start of data tracking in January 2012. The U.S. government holds 147 million troy ounces of gold at the Fort Knox Depository, out of an estimated total of 8,133 metric tons in reserve. The government sets a $42.22 per ounce value to that inventory, a far cry from the market price of nearly $3,000/oz. With that much money at stake, it’s comforting that President Trump and Elon have recently pledged to go physically verify the Fort Knox gold holdings to back up the government’s annual audit.*

In geopolitical events, at the 61st Munich Security Conference, U.S. Vice President J.D. Vance expressed concerns about Europe's 'threat from within' due to European governments allegedly censoring free speech and their political opponents. His speech followed U.S. President Trump’s criticism of Europe's position on the Ukraine war. Highlighting the rift within NATO, the E.U. and Ukraine were left out of a meeting to find a solution to the conflict where U.S. diplomats met with Russia's foreign minister in Riyadh. This may be another facet of shifting geopolitical regimes. Despite the increasingly tense political relationship between the U.S. and Europe, the prospect of an end to the fighting in the Ukraine has contributed to calmer equity markets.

Against this backdrop, the Real Assets Index trailed Global Equities, as Global Infrastructure and Global Real Estate Securities lagged. Natural Resource Equities (GNR) led the market to outperform broader equities, followed closely by Commodity Futures. U.S. Treasury Inflation-Protected Securities (TIPS) lagged the broader Real Assets market. Within Global Natural Resource Equities the Agriculture segment outperformed on the strength of Ag Chemicals and Paper & Forestry, while Ag Products fell into negative territory. Companies in the Steel segment led the market despite Metals & Mining companies lagging the broader sector. Commodity Futures followed GNR equities as Energy commodities outperformed. Natural Gas led performance as cold weather boosted heating demand. Agriculture continued to perform well with continued strength in Sugar prices, accompanied by Wheat, Cocoa, Corn, and Soybean Oil. Livestock and Industrial Metals posted negative performance as Platinum performance declined the most. Both Hogs and Cattle prices were weaker in the period after a strong year-to-date run. Copper performance led the decline in Industrial Metals as the market continued to rebalance from recent short coverings. Within Global Real Estate, the U.S. lagged other global regions as securities in Canada, Japan (REITs), and Australia (Rentals) led the way, while Europe ex-UK (Office, Nordics, Residential), Asia ex-Japan (HK Developers), and the U.S. and UK lagged. In the United States, securities in the Healthcare, Hotels, and Net Lease segments led performance, while those in Specialty, Retail, Self Storage, and Office posted negative returns. Finally, within the Infrastructure segment securities in Asia Pacific (Japan) and the Americas (U.S. Oil Storage and Transport and Master Limited Partnerships) led performance while those in Europe lagged, primarily in the Communications segment.*

Why it matters: Facing disruption in financial markets, trade flows, and corporate revenues, investors need to stay on their toes to factor in new information and potential outcomes. We believe that real assets should play a strategic role in investors’ portfolios, as they could potentially benefit the risk/return profile in a variety of economic and market conditions.

In the full report:

Macro Dive: This week, we look at recent jobs data in the U.S., price readings in Canada, and financial conditions in Australia.

Real Assets, Real Insights: This week we will look at one funding method companies are utilizing for their data center growth plans, utilities adapting to changes in demand, and finally the equity leverage to gold prices.

Click here to read the full report.

This report is for professional/institutional investors only. To access, please validate accordingly and select "Global English" site for a smoother journey.

* Source: Bloomberg, as of February 19, 2025

Any mentions of specific properties or securities are for illustrative purposes only and should not be considered a recommendation. Diversification neither assures a profit nor guarantees against loss. Past performance is not a guarantee of future results. The opinions and forecasts expressed are those of the authors and may not come to pass. Forecasts are based on assumptions, estimates, views and hypothetical models or analyses, which might prove inaccurate or incorrect.? Forecasts are not a reliable indicator of future returns. All investments involve risks, including potential loss of principal. Index returns do not reflect fees or expenses, and it is not possible to invest directly in an index. Companies involved in artificial intelligence and big data face intense competition, may have limited product lines, markets, financial resources and personnel. Artificial intelligence and big data companies are also subject to risks of new technologies and are heavily dependent on patents and intellectual property rights and the products of these companies may face obsolescence due to rapid technological developments.

Glossary

One basis point (bps) equals 1/100 of a percentage point.

Artificial intelligence (AI) is the theory and development of computer systems able to perform tasks normally requiring human intelligence.

Credit spread is the difference between the yield (return) of two different debt instruments with the same maturity but different credit ratings.

A futures contract is a standardized, contractual agreement to trade a financial instrument or commodity at a pre-determined price in the future.

The?gross domestic product (GDP)?is the monetary value of all the finished goods and services produced within a country's borders in a specific time period.

High-yield?bonds are issued by below-investment-grade-rated issuers and usually offer a relatively high yield.

Inflation is the rate at which the general level of prices for goods and services is rising and, subsequently, purchasing power is falling.

Investment grade (IG) refers to a credit rating from a rating agency that indicates that a bond has a relatively low risk of default.

A?Master Limited Partnership (MLP)?is a publicly traded limited partnership. Shares of ownership are referred to as units.

A Real Estate Investment Trust (REIT) is a company that owns and, in most cases, operates income-producing real estate. REITs sell like a stock on the major exchanges and invest in real estate directly, either through properties or mortgages.

The S&P 500 is an index that includes 500 leading U.S. companies capturing approximately 80% coverage of available U.S. market capitalization.

The spread is the difference between the quoted rates of return on two different investments, usually of different credit quality.

A tariff is a tax imposed by one country on the goods and services imported from another country.

Treasuries?are fixed-interest U.S. government debt securities with different maturities: Treasury bills (1 year maximum), Treasury notes (2 to 10 years), Treasury bonds (20 to 30 years) and Treasury Inflation Protected Securities (TIPS) (5, 10 and 30 years).

Treasury Inflation-Protected securities (TIPS) are a form of U.S. Treasury bonds designed to protect investors against inflation. These bonds are indexed to inflation and pay investors a fixed interest rate as the bond's par value adjusts with the inflation rate.

The VIX (CBOE Volatility Index) is a trademarked ticker symbol for the Chicago Board Options Exchange Market Volatility Index. It is a popular measure of the volatility of the? S&P 500 as implied in the short-term option prices on the index.

Yield?is the income return on an investment referring to the interest or dividends received from a security and is usually expressed annually as a percentage based on the investment's cost, its current market value or its face value.

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