BofA - Merrill tells investors to look at real assets amid War on Inequality
'Get real', strategists at Bank of America-Merrill Lynch told clients.
In a research report dated 16 October, the investment bank said the time was ripe for investors to shift into literally "real" assets, such as real estate, commodities or collectibles, for example, instead of financial assets.
Critically, such real assets tended to perform well during times of inflation, whereas stocks and bonds were negatively-correlated.
They also offered a hedge against tightening by central banks.
"The 2016-2017 policy flip from QE/ZIRP/NIRP to less monetary stimulus & more fiscal stimulus reflects rising political pressure to reduce wealth inequality," BofA-Merrill Lynch said.
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Since 1950, the relative performance of real assets had an 82% correlation with the Fed funds rate, strategist Michael Hartnett, Brian Leung and Jered Woodard said in a research report sent to clients.
Furthermore, the relative prices of real assets (real estate, commodities, collectibles) to financial assets (stocks & bonds) was at its lowest level since 1926.
Real estate (REITs: 3.3%, timber: 2.6%, agriculture: 2.6%) and infrastructure: 3.2% also offered higher yields than global equities and bonds, they argued.
Just 8.2% of exchange-traded funds market cap was exposed to real assets, BofA-Merrill Lynch said.
Among the beneficiaries, the investment bank said, would be the following: Fiscal-exposed equities in key markets, S&P Global infrastructure fund, MSCI world transportation infrastructure index, US energy stocks, commodities, TIPS, BofA ML US corporate tailroads index, MSCI global timber and BofAML Green bonds index.