SPDR® SSGA Multi-Asset Real Return ETF (RLY) – Q1 2022 Commentary

During the first quarter of 2022, RLY finished up in absolute returns and outperformed its custom strategic benchmark. The fund finished the quarter with overweights to natural resource equities, commodities and global infrastructure.


Driving outperformance was overweights to commodities and global natural resource equities, particularly a targeted allocation to energy. Funding these overweights from REITs (Real Estate Investment Trusts) and inflation-linked bonds was also beneficial. Ongoing labor and supply constraints have pushed inflation to a 40-year high, while the Russian invasion of Ukraine, and the impact on commodity prices has forced inflation expectations to recalibrate higher which benefited Real Assets. Commodities and Natural Resource equities continued to benefit from strong demand and sticky inflation.

Additionally, Russia’s invasion and subsequent sanctions have propelled commodity prices higher due to potential supply disruptions across the energy, metals and agriculture sectors. Concerns about global economic growth arising from elevated prices and the potential for an accelerated hiking cycle pushed nominal yields higher. Despite the uptick in inflation expectations, the rising yields weighed on Treasury Inflation-Protected Security (TIPS). The re-setting of growth expectations was a headwind for Real Estate Investment Trusts (REITs), which finished lower. Elsewhere, an overweight to global infrastructure and cash dented relative performance. Defensive positioning later in the quarter supported global infrastructure, which finished higher, but trialed other risk assets and detracted from relative performance.

Fund Performance

Fund Performance

Portfolio Allocations

Portfolio Allocations

Portfolio Positioning and Outlook

The outlook for real assets is constructive with inflation set to remain elevated and expectations for continued economic growth, albeit at a lower level, supporting demand. The macroeconomic environment is less certain than it was entering 2022. While much depends on the duration of the Russian-Ukraine conflict, the underlying fundamentals still support positive growth. Fading Omicron impacts have improved mobility and helped sustain demand while robust household savings can help consumers weather higher inflation for a period of time. Further, corporate financial conditions, aided by solid profits, remain favorable. Although base effects may moderate readings, inflation and expectations should remain elevated throughout 2022 with lingering shortages, high energy prices, rising shelter costs and strong demand underpinning inflationary pressures.

Within commodities, supply and demand fundamentals are strong across both energy and metals which should keep prices higher. A prolonged war or escalation in sanctions could add further upward pressure on the commodity complex with contagion effects across multiple assets. Commodities are not without risk with the International Energy Agency noting that ‘’surging commodity prices and international sanctions levied against Russia following its invasion of Ukraine are expected to appreciably depress global economic growth’’.1 Another downside risk to the bullish consensus on commodity prices is the potential of a COVID-19 related slowdown in China as the central government locked down much of Shanghai for COVID-19 testing. While both these risks could weight on commodities, our current outlook remains positive, aided by our quantitative models which still forecast positive returns with a favorable curve structure.

Both global natural resource equities and infrastructure equities stand to benefit from infrastructure spending along with longer-term trends of decarbonization and other green energy thematics. Further, our baseline for still positive economic growth in 2022 should buoy demand.

Overall, real assets continue to be well positioned to perform well in the current environment and provide some offset for investors of other traditional asset classes that may struggle to post positive returns during this period of high inflation and increased geopolitical risk.

Market Regime Forecasts

The Market Regime Indicator (MRI) employs a quantitative framework and forward-looking market indicators, including equity- and currency-implied volatility, as well as credit spreads, to identify the current market risk environment. Tracking risk appetite shifts in the market cycle helps frame tactical asset allocation and volatility targets.

A Look at the MRI

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