There are endless ways to separate and target assets using ASX ETFs.
One distinction that VanEck believes could be worth monitoring is real assets.
Real assets are physical, tangible investments such as property and infrastructure. These derive value from their use and often generate income.
These differ from other investment classes like bonds, which represent contractual claims on value rather than ownership of physical goods.
A new report from VanEck has shed light on why ASX ETFs focused on physical assets could be worth considering.
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Infrastructure and listed property
Two examples of physical assets that VanEck points to are infrastructure and physical property.
VanEck explained that global real estate includes investment opportunities not readily available in Australia, including student housing developments, storage, data warehouses, and hotels.
Often, rental income is linked to inflation, so it tends to increase with CPI. Australians have had a long affinity with property investing, and the requirement for income is a key driver of its demand.
Investors have also come to recognise that infrastructure assets tend to be linked to steady and reliable income, supported by real assets that tend to be long-lived and that generally retain their value.
One example of this is ASX-listed toll operator Transurban Group (ASX: TCL).
Generally, road tolls increase in line with changes in the Consumer Price Index. Government regulation determines the amount and the frequency of toll price increases each year. And despite these rises, these roads still have traffic jams.
This highlights one of the key drivers of the long-term performance of global infrastructure securities: they exhibit inelastic demand for the services they offer.
VanEck said that with many investors predicting a high inflation and low growth, a stagflationary environment, infrastructure is piquing investor interest.
In the past global listed infrastructure has outperformed global equities during recent stagflationary environments, when US inflation was above 2.5%, and US real GDP Growth was below 2.5%, in 3 out of the last 4 periods.
How to gain exposure with ASX ETFs
VanEck has identified two ASX ETFs that offer exposure to these real assets.
Firstly, the VanEck FTSE Global Infrastructure (AUD Hedged) ETF (ASX: IFRA).
The fund gives exposure to listed infrastructure companies across developed markets. The underlying index framework is designed around infrastructure sub-sectors, with target exposures of roughly 50% to utilities, 30% to transportation, and 20% to other infrastructure.
In practice, that means investors are buying into assets such as regulated utilities, toll roads, airports, pipelines, towers and related essential-service businesses. That is a compelling setup when markets are rewarding resilient cashflows and businesses with pricing power or long-duration demand.
The second fund to consider is the VanEck FTSE International Property (AUD Hedged) ETF (ASX: REIT).
It gives investors exposure to roughly 300 international property securities/REITs across countries and sectors that are not easily accessible through the local market.
We think the bullish case is that elevated cash yields, stable income demand, a recovering property sector and ongoing infrastructure investment keep supporting listed real assets.
The main risks are a renewed rise in long bond yields, slower-than-expected rate cuts, and sector-specific weakness in parts of the property or infrastructure markets.
