Real Assets Rise as Portfolio Lifelines in Bank of America’s 2025 Outlook

In an era of persistent inflation and elevated interest rates, traditional financial assets have struggled to deliver stability. Bank of America’s 2025 Specialty Asset Management (SAM) Outlook underscores a bold shift in investment strategy: real assets—such as commercial real estate, farmland, timberland, and energy—are now indispensable tools for wealth preservation and growth. These tangible assets, often overlooked during bull markets, are emerging as critical diversifiers in a world where bonds and equities face headwinds.

Commercial Real Estate: A Rebound with Resilience

Commercial real estate (CRE) is experiencing a quiet renaissance. After a post-pandemic slump, bank of america notes that CRE valuations have stabilized, liquidity has improved, and investor confidence is returning. The sector’s recovery is fueled by a rebalancing of supply and demand, particularly in office and industrial properties.

The report highlights that CRE’s low correlation with stocks and bonds makes it a potent hedge against market volatility. For instance, during the 2022 equity selloff, the MSCI US REIT Index fell only 14%, compared to the S&P 500’s 19% drop. This resilience is attracting long-term investors.

Farmland: A Bargain in a Volatile World

Farmland, long a bastion of stability, presents a rare opportunity in 2025. Competitive pressures have eased, and valuations have stabilized or dipped slightly, creating a buyer’s market. The report emphasizes farmland’s dual appeal: it’s both an inflation hedge—historically outperforming CPI over decades—and a tangible asset insulated from geopolitical shocks.

Data from the NCREIF Farmland Index shows that farmland has returned an average of 10.5% annually over the past decade, with only two years of negative returns. Bank of America’s analysts argue that this consistency, combined with current pricing, makes farmland a “strategic anchor” for portfolios.

Timberland: Growth Rooted in Nature

Timberland offers a unique risk-reward profile. Its value is tied to biological growth cycles—trees take decades to mature—making it impervious to short-term economic swings. Bank of America’s SAM team calls it a “prudent” investment for those seeking steady, long-term returns.

Timber prices have risen 22% since 2020, driven by global construction demand and renewable energy initiatives. The S&P Global Timber & Forest Products Index has outperformed the S&P 500 by 8 percentage points annually since 2015.

Energy: Transitioning to a Greener Future

The energy sector is undergoing a seismic shift. Bank of America forecasts that U.S. energy supply will increasingly favor natural gas and renewables, aligning with global decarbonization goals. This transition is creating opportunities in sectors like solar, wind, and carbon-capture technologies.

The report highlights that energy assets now offer both inflation protection and exposure to structural demand. Global energy consumption is projected to grow 45% by 2050, driven by emerging economies. Companies like NextEra Energy (NEE) and Chevron (CVX) have outperformed the broader market in 2024, with NEE up 28% year-to-date.

Risks and the Case for Expertise

Real assets are not without pitfalls. Natural disasters, regulatory shifts, and illiquidity can lead to abrupt value declines. For example, timberland values dropped 30% in regions affected by wildfires in 2023. Bank of America stresses the need for professional guidance to navigate these risks.

The SAM team’s role is critical: they provide tax optimization, liquidity management, and due diligence—services that individual investors often lack. Their ultra-high-net-worth clients have seen average annual returns of 12% in specialty assets over the past five years, outperforming the S&P 500 by 5 percentage points.

Conclusion: A New Era for Real Assets

Bank of America’s 2025 Outlook paints a clear picture: in an era of high rates and inflation, real assets are no longer niche but essential. The data is compelling:

• Commercial real estate has outperformed equities in 70% of bear markets since 1970.
• Farmland has delivered 9% annual returns over the past 20 years while correlation with stocks remains near zero.
• Timberland’s returns have beaten inflation by an average of 3 percentage points annually since 1985.
• Global energy demand is set to grow 1.7% annually through 2050, per the International Energy Agency.

However, success requires a strategic, long-term approach and expert management to mitigate risks. As traditional assets falter, investors would be wise to look beyond Wall Street for growth—and stability—in the decade ahead.