Why look at real assets into 2027?

UBS said it favors real assets, including commodities, infrastructure and property, for 2027 because artificial intelligence is increasing demand for data centers, electricity and power infrastructure.

Real assets are physical holdings whose value comes from their characteristics and real-world use, the broker in a report from its Chief Investment Office.

They include property, infrastructure such as power networks and digital infrastructure, and commodities spanning energy, metals and agricultural products.

UBS said electrification, energy security and supply-chain realignment are also encouraging spending on power, industrial capacity and infrastructure, which could support industrial commodities and infrastructure assets.

In property, development has declined across many sectors, restricting future supply. UBS said data centers, senior housing, multifamily housing and high-quality offices appear particularly well positioned, and that very low new supply should underpin pricing and rental growth.

Gold plays a different role, the broker said. Fiscal uncertainty, geopolitical shocks and inflation concerns could support demand for the metal as a store of value and a hedge.

In UBS’s base case, continued spending on AI capacity, power generation, electrification, defense, energy security and supply-chain resilience could favor commodities and infrastructure. 

If AI lifts productivity more strongly, industrial commodities and infrastructure could gain further, but gold could lag if fiscal and geopolitical risk premiums recede.

If AI spending reverses sharply, cyclical commodities and energy could weaken, while gold might hold up better if real yields fall. 

Persistent structural inflation could be particularly supportive for energy, industrial metals, infrastructure and gold, UBS said.

Higher interest rates or tighter financing could weigh on infrastructure and real estate valuations and raise refinancing costs, the broker said. 

Slower economic growth could hurt cyclical commodities and infrastructure, and weaker-than-expected AI spending could cut demand for some commodities. Infrastructure projects can also face permitting delays, grid constraints, equipment or labor shortages and cost overruns.

UBS said real assets should not be treated as a single, or "defensive," asset class, as performance can vary significantly between sectors and economic conditions. 

It sees their main role as a diversifier: commodities have historically had relatively low correlation with traditional asset classes, while private infrastructure has shown low correlation with a traditional 60/40 stock-bond portfolio.