In Q1 2026, global economic activity moderated, and risk assets faced volatility due to escalating Middle East conflict, which surged energy and commodity prices and intensified inflation concerns. Despite these headwinds, real assets delivered positive returns, with commodities leading the way. State Street Investment Management's real assets strategy notably gained 13.3% for the quarter, outperforming its benchmark. The outlook for energy and gold remains constructive, while inflation is anticipated to stay sticky, underscoring the importance of real asset exposure.
Every atomic assertion extracted from the underlying record, ranked by evidence strength.
Overall, real assets posted positive returns for Q1 2026, though performance varied meaningfully across time periods and asset classes.
As Q1 2026 progressed, the escalation of conflict in the Middle East drove higher energy and commodity prices, increasing input cost pressures and weighing on sentiment.
The State Street Investment Management real assets strategy continued its positive momentum from last year, gaining 13.3% in the first quarter of 2026.
The outlook for the energy complex has become increasingly constructive, led by a shift in oil market fundamentals.
State Street Investment Management's base case anticipates inflation will remain sticky but broadly stable through the remainder of 2026, with upside risks.
During the first quarter of 2026, global economic activity remained resilient but gradually moderated toward quarter end, as demand and business confidence softened.
Despite recent moderation, inflation remains sticky, with upside risks heightened by developments in the Middle East.
Bond markets were volatile in Q1 2026 as expectations for near-term rate cuts were reassessed.
By the end of Q1 2026, real assets were contending with the implications of a US and Israel war with Iran, introducing a new layer of uncertainty.
Global equities declined in Q1 2026, with US markets lagging international peers, emerging markets remaining relatively resilient, and value stocks outperforming growth.
Agriculture also contributed positively to commodity performance in Q1 2026, supported by resilience across grains and oilseeds.
February 2026 was softer for commodities but still advanced 4.8%, helping to sustain gains for investors.
Commodities was the only asset class to deliver gains in each month of Q1 2026, albeit with different sectors driving returns over the period.
The State Street Investment Management real assets strategy was positive for Q1 2026, posting gains in every month, supported by strength in commodities, which have risen consistently since April 2025.
Global macro conditions were evolving cautiously in early 2026 as policymakers navigated shifting political landscapes, currency volatility, and renewed market sensitivity to policy signals.
At the start of 2026, real assets benefited from optimism around easing monetary policy, early signs of earnings resilience, and improving breadth across both developed and emerging equity markets.
After a strong finish to 2025, risk assets faced a tougher Q1 2026, as escalating Middle East conflict pushed energy prices higher, reigniting inflation concerns and increasing volatility across asset classes.
The State Street Investment Management real assets strategy still managed to eke out a gain of approximately 0.32% in March 2026 despite broad asset class declines.
For Q1 2026, the State Street Investment Management real assets strategy modestly outperformed its composite benchmark by 11 bps, attributable to the benefits of the rebalancing policy.
Since its inception in 2005, the State Street Investment Management real assets strategy has maintained its lead over the composite benchmark by more than 20 bps annually and has delivered an annualized return of 5.3%.
Commodity markets delivered a strong performance in Q1 2026, with the Bloomberg Commodities Enhanced Roll Yield Total Return Index rising 22.9%, driven by escalating geopolitical risks and sharp energy price shocks.
Energy shocks were the primary driver of gains in commodity markets in Q1 2026, while metals delivered mixed results overall, balancing supply constraints against elevated volatility.
March 2026 proved more challenging for natural resource equities, particularly within the materials sector, leading to a modest decline of approximately 0.9% for the month.
January and March 2026 saw nearly identical gains in the commodities allocation within the State Street Investment Management strategy, rising approximately 8.3% in each month.
Chemicals and food products companies rose 18% and 19%, respectively, in Q1 2026.
The energy sector was the strongest performing commodity sector in Q1 2026, with the Bloomberg Energy Subindex gaining 60.0%, driven overwhelmingly by crude oil.
WTI crude rose 79.8% in Q1 2026, reflecting an unprecedented escalation in geopolitical risk after conflict in the Middle East triggered one of the largest oil supply disruptions on record.
The International Energy Agency confirmed that flows through the Strait of Hormuz collapsed, while Gulf producers cut output by more than 10 mb/d, prompting a record release of emergency oil stocks.
The Bloomberg Natural Gas Subindex underperformed in Q1 2026, falling -4.2%, as early quarter weather-driven gains reversed amid easing demand and rising inventories.
Elevated prices and transport disruptions began to weigh on oil demand toward quarter end in Q1 2026.
In March 2026, following the outbreak of war involving the US and Israel with Iran, many asset classes declined.
The US dollar notched its best quarter since Q4 2024, rising 1.6% in Q1 2026.
Copper lagged in Q1 2026, weighed down by concerns around Chinese demand momentum and broader global growth uncertainty.
Aluminum outperformed within the industrial metals complex, benefiting from constrained supply and rising energy-driven production costs, while zinc and nickel posted modest gains.
The Bloomberg Precious Metals Subindex rose 8.6% in Q1 2026, supported by heightened geopolitical risk and safe haven demand.
A firmer US dollar and the Federal Reserve's decision to hold rates steady lifted real yields, increasing the opportunity cost of holding gold and silver.
Agricultural commodities delivered solid performance in Q1 2026, with the Bloomberg Agriculture Subindex rising 8.0%, supported by broad-based gains across grains and oilseeds.
Wheat was a standout performer in Q1 2026, with strong advances in both Chicago and Kansas wheat, reflecting tightening global supply conditions and heightened weather uncertainty.
Soybeans posted robust gains in Q1 2026, supported by firm demand and strong performance in soybean oil, which surged amid higher energy prices and resilient biofuel demand.
Corn and soybean meal delivered more moderate but positive returns in Q1 2026, while sugar and cotton also advanced on supply-side dynamics.
Coffee declined in Q1 2026, weighed down by expectations of ample supply and improving harvest prospects.
Livestock posted moderate gains over Q1 2026, with the Bloomberg Livestock Index rising 4.2%.
Global natural resources equities delivered the second strongest performance among real asset classes during Q1 2026, with the S&P Global LargeMidCap Commodity and Resource Index rising 22.1%, driven primarily by strength in the energy complex.
The effective closure of the Strait of Hormuz drove sharp price increases in underlying commodities, which flowed through to the equities of companies involved in the production and development of those resources.
Natural resource equities began Q1 2026 rising alongside other risk assets as growth expectations improved, with returns of 12.6% in January.
February 2026 was another solid month for natural resource equities, with gains across all underlying sectors, resulting in an 8.5% increase for the asset class.
The Bloomberg Industrial Metals Subindex rose 4.6% in Q1 2026, supported by strong gains in aluminum.
Oil and gas stock prices moved sharply higher in Q1 2026 amid rising oil prices due to escalating geopolitical risk and the outbreak of war in the Middle East.
Energy companies posted positive returns in all three months of Q1 2026, with the subsector rising nearly 39% in aggregate.
Agriculture companies also delivered positive returns in each month of Q1 2026, ending the quarter up 17.3%.
Industrial and precious metals delivered positive but divergent performance over Q1 2026.
The paper and forest products subsector was the only negative performer within global natural resources in Q1 2026, declining 11.7% for the quarter.
Materials equities ended Q1 2026 with a gain of 8.4%, despite declines in precious metals and copper prices, reduced likelihood of rate cuts, profit taking, and inflationary concerns weighing on the subsector later in the quarter.
Infrastructure equities gained 8.1% for Q1 2026, as measured by the S&P Global Infrastructure Index.
Infrastructure companies involved in oil and gas storage delivered the strongest returns in Q1 2026 and contributed the most to performance, given their weight within the index.
Electric and multi utilities also made solid contributions to infrastructure equity performance in Q1 2026.
Water utilities recorded a strong 23% return for Q1 2026, despite representing a smaller segment of the asset class.
US real estate equities also posted gains in Q1 2026, with the Dow Jones US Select REIT Index rising 4.6%.
Specialty, retail, and healthcare REITs led performance in Q1 2026, while office and residential sectors lagged.
The State Street Investment Management real assets strategy's performance was particularly strong in January 2026, with returns of 6.6%, followed by a further 5.9% gain in February.