Chartered Alternative Investment Analyst Association (CAIA) Practice Exam

How do real assets generally perform compared to other types of investments?

1. Higher volatility

2. Dominated by speculative returns

3. Stability of performance

4. Non-correlated with other assets

The correct answer is: Stability of performance

Real assets are typically characterized by their stability of performance relative to other types of investments, particularly in times of inflation or economic uncertainty. They often include tangible assets such as real estate, commodities, and infrastructure, which tend to provide a hedge against inflation because their value can increase as the prices of goods and services rise. This stability is partly due to the intrinsic value these assets hold, as they are not usually subject to the same market fluctuations that can impact securities. While real assets can exhibit some level of volatility depending on market conditions, they generally provide a more consistent performance compared to equities or other financial instruments that might be more susceptible to speculative trading. Additionally, the underlying nature of real assets contributes to less dependency on market sentiment, allowing them to maintain value during periods of economic downturns or high market volatility. In terms of correlation with other asset classes, real assets can sometimes behave differently from stocks or bonds, especially during inflationary periods, but this does not necessarily mean they are entirely non-correlated. Their performance can align with broader economic trends, making the statement about stability more significant in context. This nuanced understanding of real assets highlights their unique position in a diversified investment portfolio—they not only offer the potential for appreciation and income but also serve as a