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Allianz Guru Series by Henry Yang: Real Assets in This Unreal Inflation

Worried about rising prices of goods? Real Assets – explained.

The past two years for me and my wife have allowed us to work from home with our loved ones. Each time my father-in-law would go home from the grocery or wet market, he would say that prices have increased.

2021 inflation was highly driven by higher pork prices. In 2022, prices of everything (groceries, foods, travels, etc.) are at highly elevated levels. With fuel price hikes announcement being made almost every week, what else can you do? Do you buy and fill storage tanks with gas, and then form road gangs to protect these stash ala Mad Max? Of course, not.

3 Ways You Can Possibly Beat High Inflation

1. Set priorities when spending

How often do you hear “Live below your means.”? Simply put, this only means that you must not spend more money than what you earn. So, review your spending habits and identify which of those are icing on the cake. Spend on the most important items, then allocate a reasonable budget for the “nice to haves.” Try not to be too strict on yourself, as being too restrictive may also make this habit unsustainable.

2. Find (cheaper) alternatives to you regular activities

Maybe the pandemic has forced you (in a good way) to work out at home instead of paying for a gym membership. Or instead of going to the cinemas, you’d watch a movie through an online streaming subscription. You can also try learning a new recipe, skill, or even language without breaking the bank.

3. Invest in assets that have good chances of earning above inflation

Your savings is in a constant race with inflation — it erodes what your money can buy, and if your money doesn’t grow at a faster pace, you’re losing value. Historically, real assets have outperformed other asset classes, like stocks and bonds, during periods of high inflation.

Photo credit: BlackRock

Introducing Real Assets

Real Assets is an investment in physical assets, such as real estate, energy production/distribution, and infrastructure. It is wider definition than typical real estate as it can also include power plants, roads, tollways, and even data centers. 

How Can Real Assets Outperform During High Inflation?

  • Annual adjustments in real estate leases — Real estate leases, especially long-term leases for office and industrial, include annual adjustments at a given rate, which is generally influenced by inflation.
  • Daily adjustments in short-term stay — Hotel, self-storage, and U.S. apartment leases are short-term (daily, monthly, and 12-14 months), which means rental prices are adjusted according to inflation.
  • Infrastructure assets’ revenues streams linked to inflation — Many infrastructure assets, including the majority of contracted power and utility investments, have an explicit link to inflation through regulations, concession agreements or contracts, providing natural inflation protection.
  • Demand for renewable power — within the renewable energy space, demand for assets is so strong that development remains attractive even as construction costs rise. Production costs for wind and solar energy are falling due to economies of scale and technology improvements. 

Invest in Real Assets

Consider Allianz PNB Life’s Global Real Asset Dividend Paying Fund. Leveraging on BlackRock’s investment expertise, Allianz PNB Life offers it in both Peso-hedged and U.S. Dollar versions. Investing in direct real assets would still require asset management so the fund invests in companies that own and operate real estate and infrastructure, such as residential apartments, data centers, and renewable energy generation.

These funds’ potential annualized dividend yield is approximately 6%. Talk to an Allianz Life Changer today to invest in the Global Real Assets Dividend Paying Fund and know which unit-linked plan will best suit your financial goals.

Head of Investments

Henry Yang

Henry Yang is a Chartered Financial Analyst (CFA) holder and a graduate of the University of the Philippines with a degree in Electrical Engineering. He spent the initial years of his career in building maintenance, electrical design and installation of construction projects, and teaching engineering. Later, he pursued his Master's in Business Management from the University of the Philippines - Los Baños as well as held investment-related roles at a top local bank, a U.S.-based investment company, and a global insurance competitor. Currently, he serves as the Head of Investments at Allianz PNB Life Insurance, Inc.