Real Asset Companies Are on the Cusp of an Earnings Revival

Real Asset Companies Are on the Cusp of an Earnings Revival


Jul. 24 2018, Published 9:21 a.m. ET


Meanwhile, although it may be slowing, global growth has improved over the short-term, and despite some uncertainty around tariffs and global trade, supply/demand dynamics across many commodities are back in balance and look to become even more favorable in the near future. Plus, companies across many of the primary industries associated with real assets are now in improved financial and operational shape after several years of restructuring to reduce capital expenditure and improve overall efficiency.

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Real asset companies could see robust earnings growth this year

The IMF (International Monetary Fund) expects the global economy to register a growth of 3.9% in 2018 and 3.9% in 2019. Despite rising concerns about a trade war, the IMF maintained its growth forecasts for the global economy for 2018 on the premise that new tariffs represent just a small share of global trade at the moment. However, it warned that further escalation in the trade war could cut 0.5% off global growth by 2020.

Real assets are ideally placed

The uptick in commodity (DBC) prices seems to be beneficial to companies related to real assets. Many of the companies in the metals and energy sectors have already been through huge restructuring processes, and those benefits are expected to accrue in the current environment.

Earnings revival in the cards

FactSet data showed that of the four sectors that are expected to report double-digit growth in revenues in Q2 2018, three are from real assets: materials (XLB), energy (XLE) (VDE), and real estate (IYR). The energy sector is expected to report year-over-year earnings growth of 144.2% in Q2 2018. It would be the highest growth of all 11 sectors of the S&P 500 Index. Higher oil prices and last year’s lower base are the prime reasons for higher earnings growth in the energy sector.

Overall, with global growth rebounding and fueling demand, real assets are well positioned for a strong bounce back.


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