Listed real assets’ strong absolute returns this year highlight the importance of allocating to public exposures alongside private ones. Looking forward, we believe real asset sectors are poised to perform well in 2025, supported by several key themes as near-term tailwinds align with the “Three Ds” (deglobalization, digitalization and decarbonization)—megatrends that we expect will drive real asset demand for decades. 

A more normalized macro backdrop. In 2024, inflation has eased in most regions and central banks globally have been lowering rates. In the U.S., inflation continues to slowly come off the boil. While costs of living remain elevated vs. several years ago, the rate of inflation is trending downward. If that continues, we’re likely to have a more certain and stable interest rate environment in 2025, which should support real asset sectors.

A disconnect between real asset equity valuations and growth. Market observers are raising warning flags about elevated price-to-earnings ratios for the equity market overall. While there may be pockets of overvalued sectors, we think stock prices for listed real assets, in many cases, undervalue the earnings growth support coming from the “Three Ds.” These structural growth trends continue to gain momentum, with trillions of dollars expected to be invested annually in real asset sectors for years to come. In our view, these dislocations show the potential runway for real asset sector valuations from here.

Undervalued utilities in North America. Utilities are one just example of a real asset sector trading at a valuation disconnected from its strong earnings growth outlook. Over the last several quarters, the individual growth rates projected in utilities’ business plans have begun to increase, driven by the massive capital investment required to upgrade the U.S. electrical grid to accommodate increasing power demand from deglobalization, data centers and the energy transition. We find such business-plan projections have a high degree of certainty given that utilities are regulated and large-scale asset development is capital intensive. We believe the structural growth on the horizon will extend utilities’ growth trajectory for the foreseeable future; and in many cases, security prices appear to undervalue earnings growth prospects.

An ongoing energy revolution. We believe the transition toward cleaner and more reliable energy is on track to continue in 2025. In the U.S., policies to encourage clean power and decarbonization efforts enjoy bipartisan support, given the thousands of new related jobs that have been created. Meanwhile, countries outside the U.S. continue to push forward with their transition policies. In our view, this should support climate transition equities, which we believe appear mispriced amid outsized concerns about higher interest rates and policy uncertainty. In addition, the intersection of digitalization and decarbonization (with the artificial intelligence revolution as the main example) represents a structural shift for the power sector, given data centers’ critical need for consistent power. We believe that companies involved in both power generation and transmission & distribution will play a key role in meeting this need—and will require unprecedented capital investment for years to come as a result.

Support for the midstream sector. We believe the strong fundamentals of the energy infrastructure (or “midstream”) sector may see an additional boost from policy changes and demand drivers. President-elect Trump’s campaign pledged to boost U.S. energy production via deregulation and permitting reforms. Permitting reform, in particular, could drive the accelerated buildout of critical infrastructure at attractive returns. We also believe the sector’s growth will be supported by robust power demand related to artificial intelligence (AI) and industrial growth.

Bottoming commercial real estate values. Indexes tracking commercial property values and private market returns are turning positive after several years of declines. As a result, more sellers are likely coming to the market, as real estate values find a bottom. Real estate investment trusts (REITs) are likely to be acquisitive and seek external growth. Combined with favorable fundamentals (including limited new supply and growing demand), we see a favorable backdrop for REIT earnings to accelerate in 2025. 

As we head into the new year, there are risks to our outlook for listed real assets, including the potential for economic growth to slow more than we expect or for higher inflation to resurface. In addition, some real asset companies may be cheap for a reason, posing potential value traps. We believe active management rooted in bottom-up, fundamental analysis is key for discerning the potential winners from the losers, as market conditions evolve. 

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This material is not, and is not intended as investment advice, an indication of trading intent or holdings or the prediction of investment performance. All information is current as of the date of this material. Views and information expressed herein are subject to change at any time. Brookfield Public Securities Group LLC disclaims any responsibility to update such views and/or information. This information is deemed to be from reliable sources however, Brookfield Public Securities Group LLC does not warrant its completeness or accuracy. This presentation is not intended to, and does not constitute an offer or solicitation to sell or a solicitation of an offer to buy any security, product, investment advice or service (nor shall any security, product, investment advice or service be offered or sold) in any jurisdiction in which Brookfield Public Securities Group LLC is not licensed to conduct business, and/or an offer, solicitation, purchase or sale would be unavailable or unlawful. Indexes are unmanaged and are not available for direct investment.

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