Why look at real assets into 2027?

UBS has advised investors to consider real assets like commodities, infrastructure and property for the year 2027, citing the increasing demand for data centers, electricity and power infrastructure due to advancements in artificial intelligence (AI). According to the brokerage's Chief Investment Office, real assets are physical holdings whose value is derived from their characteristics and real-world usage, which includes property, infrastructure, and commodities such as energy, metals, and agricultural products.

The broker highlights that factors like electrification, energy security, and supply-chain realignment are driving spending on power, industrial capacity, and infrastructure, thereby potentially supporting industrial commodities and infrastructure assets. In terms of property, ongoing declines in many sectors suggest restricted future supply, making sectors like development, senior housing, multifamily housing, and high-quality offices particularly attractive. UBS believes that very limited new supply should help maintain pricing and rental growth.

Gold is presented as a distinct asset, offering a different role in the portfolio. Fiscal uncertainty, geopolitical shocks, and inflation concerns could boost demand for gold as a store of value and a hedge against economic instability. In UBS's base case scenario, which assumes continued investment in AI capacity, power generation, electrification, defense, energy security, and supply-chain resilience, commodities and infrastructure are expected to benefit.

However, if AI spending results in more significant productivity gains, industrial commodities and infrastructure could experience further growth, while gold might fall behind should fiscal and geopolitical risk premiums diminish. Conversely, if AI spending suddenly reverses, cyclical commodities and energy may suffer, whereas gold could maintain its value better if real yields decrease.

UBS also suggests that persistent structural inflation could favor energy, industrial metals, infrastructure, and gold. Higher interest rates or tighter financing could negatively impact infrastructure and real estate valuations, increasing refinancing costs.

The broker emphasizes that real assets should not be viewed as a single, or defensive, asset class, as their performance can vary significantly depending on the sector and prevailing economic conditions. Instead, UBS sees their primary role as a diversifier: commodities have historically exhibited relatively low correlation with traditional asset classes, while private infrastructure has shown low correlation with a conventional 60/40 stock-bond portfolio.