When an advisor explains to a client how he developed a diversified portfolio to suit the client’s specific needs, the advisor typically shows charts with percentages next to asset classes.

Domestic and global equities? Check. Large-cap, mid-cap, small-cap? Check.

Fixed-income and cash? Check. Alternatives? Check (usually).

But some advisors seek to drill deeper, further balancing a portfolio with what some refer to as “real assets.”

“I tell everyone you want to take a look at some of the things that are going on with food, fuel, forest,” says Michael Underhill, chief investment officer of Pewaukee, Wis.-based Capital Innovations and manager of the firm’s Global Agribusiness, Timber and Infrastructure Fund.

Turning to commodities is an investment idea as old as, well, the forest, but Underhill goes beyond raw materials and stresses selectively picking companies whose profit potential is based squarely on the growth of the global middle class and their desire for a better life.

“You can’t fight demography. Demographics will change this world,” he says. “A real assets strategy should comprise tangible real asset classes whose values are driven by barriers to supply and rising replacement class,” Underhill adds.

Specifically, where might that propel an advisor to find investments?

“Looking at the great rollout of some of the challenges [China] is going through, with those challenges, therein lies the opportunity … of a $1 trillion infrastructure build-out. If everyone in China were to take a shower three times a week, which they do not do today, China would be out of water in a week.” And that means Underhill considers companies focused on clean water supply throughout the developing world.

A growing global middle class assuredly means rising energy needs. Cost-effective alternatives to fossil fuels – such as sugar cane-based ethanol – may be years away from widespread use by U.S. consumers, but other corners of the globe have been far more receptive.

As the housing stock of the developing world is created and upgraded, Underhill foresees growing demand for forest land and the companies that own and manage them. Parquet wood floors, he says, are “a sign of ‘I’ve made it – I’ve made it to the new social class.’ ”

The most basic need of all, of course, is food, and Underhill points to “the megatrend of feeding the world.”

“When you look at some of the dynamics of playing upstream, midstream and downstream – fertilizers, potash, nitrogen-based fertilizers – [these are] some of the things that are going to capture some of the dynamics for food,” he says.

Scott Wenger

Scott Wenger

Scott Wenger is group editorial director of Financial Planning, On Wall Street, Bank Investment Consultant and Money Management Executive.