Market volatility has spiked: Donald Trump’s ‘Liberation Day’ tariffs have pushed equities into bear market territory and spared almost no asset class. Concerns about slowing growth are climbing and investors are wondering what’s next as tariffs take hold globally.
Specifically, regarding tariffs, we believe listed real assets (real estate, infrastructure, commodities and natural resource equities) are less likely to feel the brunt of the negative impact. This was the case in the first Trump presidency when listed real assets outperformed equities substantially from 2018 to 2020 when tariffs took hold, though the current escalation in tariffs is much more substantive.
First, real assets tend to generate predictable revenues and high dividend yields due to longer-term leases or contracts. Those less volatile earnings streams have provided strong returns historically but can be particularly attractive in times of market uncertainty.
Second, most real assets have much lower direct exposure to tariffs than many other asset classes. They generally are not exporters or major importers. Further, real assets are benefiting from strong secular themes that we believe will keep their momentum almost regardless of tariff pressures.
Third, the starting point for valuations for real assets is relatively attractive. Finally, real assets have also historically outperformed in inflationary environments, particularly when inflation surprises to the upside. Tariffs will significantly contribute to deglobalisation, geopolitical friction and more elevated commodity prices, each of which is inflationary, though the long-term impact of tariffs still remains uncertain.
Listed real estate ahead of the uncertainty
The strong historic performance of real estate investment trusts (REITs) has been underpinned by their stable business models, which focus on acquiring and developing high-quality assets that generate recurring income tied to leases. That is a very different business than importing or exporting goods, which is subject to tariffs.
Secular shifts unlikely to be abated by tariffs are also driving favourable pricing power for a number of sectors. Data centre demand is rising given the accelerated needs of cloud computing, 5G and artificial intelligence. Demographics are driving demand for senior housing (aging baby boomers) and for single-family rental properties (millennials).
However, tariffs may have a greater impact on certain real estate subsectors. In hotels, consumer weakness could be a headwind, as demand may taper if economic growth slows. In malls, retailer tenants could see costs increase substantially, pressuring their margins. And builders may suffer from higher lumber prices. Such sector dispersion is a key reason why we believe active management matters.
Listed real estate has historically performed well in inflationary environments. Among other factors, higher costs for land, materials and labour can reduce the potential profits of development, raising the economic barriers to new supply and reducing potential competition for existing properties.
REITs are currently trading at deep discounts relative to traditional equities and historically have outperformed equities following such periods. This puts listed real estate at a much better starting point heading into the current market uncertainty accelerated by tariffs.
The defensive nature of infrastructure
We believe the remainder of the core four of real assets – infrastructure, commodities and natural resource equities – have similar attributes that make them particularly attractive today, though we also believe real assets should be a permanent allocation for most investors.
While some sectors within infrastructure are sensitive to trade and global demand, predictable revenue streams driven by long-term contracts tend to make this asset class a bit more defensive than broad equities. Infrastructure companies also have the ability to pass through higher costs to end customers based on their revenue models.
Similar to listed real estate, listed infrastructure is currently trading at a discount to global equities, compared with a historical average premium. Secular trends – including digitalisation of the world’s economies, higher power demand, decarbonisation and deglobalisation – are accelerating infrastructure spending.
In a new regime, diversification matters again
The new market cycle is vastly different than the previous period of ultra-low rates, relatively low economic volatility and high stock returns, though besides treasuries, few assets were spared in the recent market selloff. Stickier inflation, lower expectations for equity returns, normalised rates, slowing growth and more economic volatility are the hallmarks of this new cycle and the market’s response to the escalation of new tariffs further cements this regime shift.
Against the current backdrop, the diversification value of real assets seems particularly compelling. Equities, the winners of the last market cycle, have borne the brunt of the market’s recent volatility. We believe too many investors are under-allocated to what we believe will be next cycle’s winners, including real assets, while holding onto last cycle’s winners.
Last year, US equities posted total returns greater than 25% for the second year in a row. Through the first quarter of 2025, the S&P 500 declined 4.3% then dropped another 4.8% on 3 April, the day after large-scale tariffs were announced. Until the recent selloffs, equity valuations had risen to levels last seen near the turn of the millennium.
By comparison, listed real assets categories are all either neutrally or attractively valued, as they repriced early to the new market regime. Other asset classes, including equities and some private assets, have yet to catch up.
Real assets, as measured by an index blend comprising listed real estate, natural resource equities, commodities and infrastructure, returned nearly 6.1% in the first quarter of 2025. That is more than a 10 percentage point difference over the S&P 500. On 3 April, the real assets blended index declined 1.7% compared to the 4.8% drop in the S&P 500.
Meanwhile, stock and bond returns have become increasingly correlated, which means that stock-bond portfolios offer less diversification than investors have come to expect.
Our conclusion? Investors are in a new world, diversification matters again and real assets may be the best place to find it.
Jeffrey Palma is head of multi-asset solutions at Cohen & Steers. The views expressed above should not be taken as investment advice.