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'Real assets appear cheap': BofA on owning precious metals, real estate and art

Kitco News

(Kitco News) Right now might be the time to finally splurge on real asset items such as diamonds, vintage cars, art, precious metals, real estate, or even that fine bottle of wine, according to Bank of America.

The reason is that "real assets appear cheap" relative to financial assets such as the U.S. stocks, said BofA chief investment strategist Michael Hartnett in a note to clients.

Hartnett's analysis shows real assets, including commodities, real estate, and collectibles, at their lowest level since 1925 relative to financial assets, such as stocks and bonds.

Here is the summary of the BofA's case for owning real assets — they are cheap compared to financial assets, they serve as an inflation hedge, they diversify portfolios, they are under-owned at the moment, and they are scarce.

"5.5% of total ETF market cap is exposed to real assets, and we see potential for this figure to rise in coming years," Hartnett wrote.

Hartnett noted that the rising inflation pressure is a critical factor, adding that inflation could be at an inflection point.

"We believe we are at a secular turning point for both inflation and interest rates," Hartnett said back in March. "We believe 2020 likely marked a secular low point for inflation and interest rates due to a reversal of deflationary secular factors, fiscal excess, and an explosive cyclical reopening of the global economy creating excess demand for goods, services and labor."

Higher inflation will weigh on stock returns over this coming decade, he added.

BofA recommends looking at both direct and indirect ways to get exposure to real assets. Direct exposure could be gained through items such as real estate, precious and industrial metals, farmland, energy, diamonds, wine, art, and cars.

Indirect ways to invest include ETFs, such as Invesco S&P 500 Equal Weight Real Estate ETF or SPDR S&P Global Infrastructure ETF. Also, REITs and specialized funds with a focus on real assets, such as Fine Art Group and Classic Car Fund, work well.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.