Long-term infrastructure, real estate and inflation planning

WWhile the Consumer Price Index (CPI) is widely expected to be in reserve for a near-term rise, these increases may well be transient.

Some market watchers are even saying that inflationary pressures could ease by the end of the year. However, this is a prediction – not a hard fact. Higher prices may turn out to be sticky. Even if the transitional outlook holds true, it is difficult to pinpoint exactly when the CPI increases will occur, even for experts. Financial advisers may be wise to strengthen their inflation protection over the long term.

Infrastructure and real estate are among the asset classes that offer this protection. These sectors are accessible through a range of exchange-traded funds, including the FlexShares Global Quality Real Estate Index Fund (NYSEArca: GQRE) and the FlexShares STOXX Global Broad Infrastructure Index Fund (NYSEArca: NFRA).

“Exposure to real estate and infrastructure companies has traditionally been helpful for investors concerned about the impact of long-term inflation,” according to FlexShares research.

Inflation Another reason to consider “GQRE”, “NFRA”

Up 10.50% on average since the start of the year, GQRE and NFRA already have tailwinds without inflation. The real estate fund is benefiting from investors’ search for yield and the rebound in this sector after its coronavirus beating in 2020.

Likewise, the NFRA is the subject of a higher bid as the infrastructure also offers above-average returns and the group is generating a lot of buzz in anticipation of Congress adopting a version of President Biden’s infrastructure plan.

In an inflationary environment, real estate investment trusts (REITs), including GQRE components, are compelling because owners have pricing power. Many commercial REITs enter into medium and long term leases with tenants and these agreements provide for incremental rent increases. These increases make REITs an attractive inflation-fighting group for investors.

Whatever the evolution of inflation, the GQRE and the NFRA offer investors another advantage: global diversification. None of the FlexShares funds are exclusively dedicated to national stocks. US stocks represent 40% of the NFRA and 59% of the GQRE.

“When investing in either asset class, however, diversification is key to seeking to reduce the risk of unintentional concentration in specific regions or sectors,” adds FlexShares. “For example, many real estate strategies invest only in US REITs, which tend to be more volatile than international REITs. Sector concentration risk is a concern in traditional infrastructure strategies. These tend to be heavily invested in sectors such as pipelines and utilities, making them overly sensitive to energy prices. “

To learn more about multi-asset strategies, visit our Multi-asset channel.

Learn more at ETFtrends.com.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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