Howdy,
Hank was spot on, as were the others. Real assets can be in the form of equities (i.e. natural resource funds), or the actual commodities themselves, also available in funds and ETFs. The former consists of stocks of companies involved in the commodity, the latter are options and futures and actual stockpiles of the commodity itself. These instruments are traded in different markets very often dancing to different drummers.
Do they track each other? Sure, if the commodity is doing well, the companies involved with it will also do well, and vice versa. However, as an investor, you also need to understand that for various and sundry reasons, they can diverge considerably, particularly in the short run.
Hand also mentioned the cyclicality [love that word, Hank] of the commodity markets. This is a pretty well established historical pattern. They run 12-15 years or so. This is due to their nature - you have to explore, discover, gather, process, deliver . . . oh, and have all your permits. It takes enormous time to bring new resources online and that results in the cyclicality.
When you talk about diversification, in this case it's your portfolio you're considering. Why not consider the diversification of your wealth. About ten years back, I read a quote from the elder Baron Rothschild saying that to protect yourself financially, one should 1/3 of their wealth in securities, 1/3 in real estate, and 1/3 in rare art [define rare art as you wish, but it ain't Beanie Babies.]
When I first read this, I ran my numbers and almost blew chunks. I was 90/8/2. I've worked pretty hard to get it to around 60/30/10 and am still working at it.
Just some ramblings,
and so it goes,
peace,
rono

OK, hate to do this...... but for Vanguard pump & you asked
MY main focus 10 yr. figures right thru the 2008 disaster;
VGHCX +13.19 yr. avg
VHCOX +10.65 "
VPCCX +10.56 "
YACKX +10.41 (counted as Vanguard..not.... but my #2holding
Balanced:
VWIAX +7.45 (60% bonds)
VWELX +8.14 (30% bonds)
V.ETF's:
VHT +11.1 (10 yr)
VYM +15.5 (5 YRS)
Bonds;
VWEHX +6.5
PRHYX +7.7
10 Managed untouchables for long term, other 20 Mostly stocks could be gone at anytime

I consider diversification not only in terms of large cap, small, intl, and bonds, etc but in sectors too. If I had not had my utility funds, reit etf and overweight in health care this past year, my total portfolio returns would have been considerable less. It is easy in hindsight to say if I would have had 100% in the S + P index, I would have had a nice 13% + return, but you never know when the tide is turning and by the time you do, you have likely lost half the runup. I am keeping my allocation to international, emerging market, energy, industrial where it is, who knows, they may be next years winners. I am 65% stocks 35% cash and bonds and will pretty much stay at that allocation.

My biggest disappointment in 2014 has been emerging markets as I own ODMAX & MAPIX both stock funds and TGEIX an em bond fund. Is it time to switch or hold? Three year performance is ok but the world is a mess in the near future and I think US is place to be for over 75% of portfolio. Other than that perhaps 20% international. Opinions appreciated.

David -- thank you for setting up this call. I likely will not be able to attend the call in person, and so would like to submit the following questions for Mr. Horn, for your consideration.
======================================
1. I've seen PGVFX described as a "true, deep value fund". In spite of this, PGVFX seems to always be nearly fully invested, while other "deep value" managers are not shy about holding cash when markets appear too rich. Why does Polaris' "deep value" style diverge from other definitions of "deep value" investing in this way? Would it be accurate to think of PGVFX as more a relative value than deep value fund?
2. I've read that earlier in his career, Mr. Horn used options and similar instruments to enhance portfolio performance and limit volatility. I believe PGVFX also has the flexibility to use similar instruments as part of its investing strategy. Would you provide an overview of PGVFX's use of these instruments and, further, provide a sense of how often these instruments are used in practice?
3. Recently PGVFX took the unusual step of reducing its expense ratio considerably, in spite of what appears to be a rather stable asset base. As a longer-term investor in PGVFX (c.2005) I appreciate this reduction, but am so surprised by the decrease that I am left puzzled as to why this has occurred. Would you provide some context as to what was behind the reduction? (And, thanks !)
4. As a small, independent advisor, Polaris has the potential to offer long-term investors opportunities for long-term outperformance. However, it could also be the case that Polaris' size could create other challenges to achieving outperformance. One of these challenges is attracting and retaining analytic staff. Another is sustaining the culture that has contributed to Polaris' performance in the past. How does a smaller firm like Polaris retain top talent, and get on the radar screen of potential analytic and portfolio management staff?
5. I am interested in understanding more about PGVFX's investment process. Specifically, the PGVFX literature indicates that Polaris uses proprietary software to identify/screen undervalued companies which are then pulled aside for further analytic review. Given the free range PGVFX has in terms of market cap, and breadth of firms in PGVFX's investable universe, I'm having trouble understanding how Polaris' 7-person team can provide coverage of this universe, unless the screening process is highly tailored (and potentially has a forecasting / data mining component). Is Polaris' approach somehow in fact as much based on modeling as much as it is traditional securities desk research? Further, does Polaris rely on outside securities research in building porfolios?
6. After initial screens are made, how does Polaris decide on country/region allocations for the PGVFX portfolio? Are macro-forces / macro research also a consideration, or is it strictly based on valuations (while remaining consistent with the typical allocation targets specified in the prospectus)? Roughly speaking, what is the largest % of the PGVFX portfolio that has ever been allocated to the US? What is the largest % of the PGVFX that has ever been devoted to a single country outside the US?
7. Does PGVFX hedge its exposure to foreign currencies and, if so, how does it make decisions on which markets/currencies to hedge vs. not?
8. What does Polaris feel its capacity is for PGVFX in terms of AUM (including both the fund itself, and any separate accounts)?
9. PGVFX did a remarkable job of avoiding the dot-com bubble, but seems to have fallen harder than the benchmark in the 2007-2008 era. What was the difference in Polaris' process 2007-2008 vs. 2000-2002?
10. How does Polaris define a "value trap", and how does Polaris' process help avoid value traps?
11. Lastly (strictly personal interest, so as to not make everything terribly dour and technical) -- at what age did Mr. Horn begin his career as an investor (what was his first stock)? If Mr. Horn had not pursued a career in investing, what field or pursuit would he have likely ended up in ?

The only real Diversification I do is hold a certain % of my portfolio in Bonds, they serve a purpose, I consider them my CASH, returning 3+% in 2014, , and I won't give them up, though they do reduce my total returns (11% in 2014), I do change %'s (yearly) of total holdings I have in bonds....
So Big (S&P) companies had a good year last year, great...... I hold a lot of them,
but not Always the case and nobody knows about 2015, so its hard to comment on being Diversified in other assets classes for 2015......just thinking

The concept "Real Assets" is open to widely differing interpretations by different managers. If a manager rode the real estate bull for the past several years, he's looking pretty good today. If he's been heavily into oil, not so good. It's a broad area which might include timber, infrastructure (railways, ports, power generation), farmland, miners or gold bullion. So, you really need to look under the hood and see what you'd be diversifying into.
...
I'm not familiar with the funds you list. But, I known there are a great many out there and that there are profound differences among them.

@willmatt72 I think @hank 's advice here is exactly right. Because "real asset" can mean such a broad swath of things, you need to look under the hood. There are lots of differing funds, each sort of specializing in different areas. NRIAX, for instance, looks a lot different than PRAFX, which is different than FSRRX. They can all certainly act as diversifiers, but you have to know specifically what you want out of them.
NRIAX / JRI 's focus is creating income in areas which could also show capital appreciation and might fight inflation. As such it looks for passthrough income from real assets, specifically from Real Estate and Infrastructure, and in both equities, preferreds, and fixed income. In other words, it has very limited commodity or natural resource exposure. That's also a big part of the reason why it has looked so good recently. Here's a link to NRIAX's info page at Nuveen. They have some good literature on the fund there. In particular, this is what the prospectus says about NRIAX's holdings:

Principal Investment Strategies
Under normal market conditions, the Fund invests at least 80% of the sum of its net assets and the amount of any borrowings for investment purposes in securities issued by real asset related companies that are generating income at the time of purchase. Real asset related companies are defined as: (i) companies that are in the energy, telecommunications, utilities or materials sectors; (ii) companies in the real estate or transportation industry groups; (iii) companies, if not in one of these sectors or industries, that (a) derive at least 50% of their revenues or profits from the ownership, management, operation, development, construction, renovation, financing, or sale of real assets, or (b) have at least 50% of the fair market value of their assets invested in real assets; or (iv) pooled investment vehicles that primarily invest in the foregoing companies or that are otherwise designed primarily to provide investment exposure to real assets.
The categories of real assets on which the Fund will focus its investments are infrastructure and real estate. Infrastructure consists of the physical structures and networks upon which the operation, growth and development of a community depends, which include water, sewer, and energy utilities; transportation and communication networks; health care facilities, government accommodations, and other public service facilities; and shipping, timber, steel, alternative energy, and other resources and services necessary for the construction and maintenance of these physical structures and networks.

Depending on the size of your portfolio, your risk tolerance, individual goals, and your comfort level with managing such things, you could just take a global infrastructure fund (GII, GLFOX, TOLSX) and combine it with a REIT index/fund or REIT income fund (FRIOX, LRIOX), and maybe some sort of TIPS or commodity exposure to come up with your own allocation. If the portfolio is smaller, or you want professional management, than something like NRIAX or PRAFX make sense to my mind. In anycase, it makes more sense as an "alternative" to me than liquid alternatives/managed futures/non-traded assets or what have you.

FYI: –- Nuveen Asset Management’s California and national high-yield municipal-bond funds earned the biggest tax-free returns in 2014, leading a broad rally in risky debt as investors combatted an unexpected drop in interest rates.
Regards,
Ted
http://www.bloomberg.com/news/print/2015-01-05/nuveen-s-21-return-leads-2014-s-high-yield-frenzy-muni-credit.html
M* Snapshot Of NCHAX: http://quotes.morningstar.com/fund/f?t=NCHAX&region=usa&culture=en-US
Lipper Snapshot Of NCHAX: http://www.marketwatch.com/investing/Fund/NCHAX?countrycode=US
NCHAX Is Ranked #12 In The (MCL) Fund Category By U.S. News & World Report
http://money.usnews.com/funds/mutual-funds/muni-california-long/nuveen-california-high-yield-municipal-bond-fund/nchax

FYI: (Click On Article Title At Top Of Google Search)
When John Templeton said, “The time of maximum pessimism is the best time to buy,” he probably wasn’t thinking that his tenet might one day refer to his own industry. Yet, for active mutual fund managers, 2014 was a point of maximum pessimism.
While the Standard & Poor’s 500 returned 13.7% for the year, stockpickers struggled to keep up. Just 19.9% of U.S. equity fund managers bested their benchmarks, according to Morningstar -- but those who did managed an advantage of 1.8 percentage points, on average. Specialists, such as sector and alternative funds, also struggled, with 33% and 25%, respectively, beating their benchmarks.
Regards,
Ted
https://www.google.com/search?newwindow=1&site=&source=hp&q=return+of+the+stockpickers+barron's&oq=return+of+the+stockpickers+barron's&gs_l=hp.3...1522.13639.0.14304.35.28.0.7.7.0.79.1685.28.28.0.msedr...0...1c.1.60.hp..13.22.1022.caZSxDnDuDQ

Hi,
I have some basic questions on MA.Those of you who use trends and MA in your fund analysis, do you use SMA or EMA ? Also, how many years chart (3/5/from Inception ?) should be used while looking at the trend ?
Thanks,
Mrc

@hank said Only.. if you can stand/afford to loose 15, 25 or 35% on the position (initially) and than smile about it.
Been there,unfortunately.
JANUARY 09 2015 Guggenheim Investments Macro View:
If the mid-80s’ supply-driven oil crisis is a guide, we should expect further declines and a prolonged period where oil prices remain depressed.
Global CIO Commentary by Scott Minerd
"But investors beware in the near-term. Even at $48 per barrel, oil is still a falling knife—I believe there remains another significant downside move. If we hit the $34 a barrel price target, which I believe we could, that would be another 30 percent decline in oil prices. Typically, people would rightly characterize a 30 percent decline as a bear market. We’ve already had a decline of over 55 percent from the high, so we’ve already been in a bear market, but if we started over today we’re going to have another one."
Supply Shock Suggests More Downside Risk for Oil
Over the past 30 years, there have been six major declines in the price of oil (defined as a greater than 50 percent cumulative decline). The current decline now stands at around 55 percent, matching the magnitude of some of the worst historical oil crashes. However, most of the past declines have been due to faltering global demand, whereas the current slump is due to a glut of oil. Therefore, the best comparable decline is that of 1985-86, when a supply shock caused the West Texas Intermediate price to plunge by more than 67 percent over the course of four and a half months. With no near-term signs of supply letting up, oil prices could continue to fall.
http://guggenheimpartners.com/perspectives/macroview/supply-shock-and-awe

So, your returns were less than the S&P 500 due to your diversification.
But somehow in a slipshod moment, he failed to mention the
feather in the diversification cap – rebalancing.
Your returns would have been even less if you had rebalanced
at the beginning of 2014.
How can he elide this factor when it’s a given in his overall playbook?

Only make these speculative moves if you can stand/afford to loose 15, 25 or 35% on the position (initially) and than smile about it.
Yes, eventually prices will be higher. But nobody knows when.

FYI:
Regards,
Ted
WSJ Slant:
http://www.wsj.com/articles/u-s-stock-futures-fall-ahead-of-jobs-report-1420809711
Bloomberg Slant:
http://www.bloomberg.com/news/print/2015-01-09/u-s-index-futures-are-little-changed-before-payroll-growth-data.html
Reuters Slant:
http://www.reuters.com/assets/print?aid=USL1N0UO23820150109
MarketWatch Slant:
http://www.marketwatch.com/story/us-stocks-end-volatile-week-lower-2015-01-09/print
Markets At A Glance: http://markets.wsj.com/us
Sector Tracker: http://www.sectorspdr.com/sectorspdr/tools/sector-tracker

FYI: Last year, you didn’t really need diversification, and it didn’t really help you.
This year, you may well need to be diversified, but it’s not going to save you.
Regards,
Ted
http://www.marketwatch.com/story/diversification-wont-work-in-2015-2015-01-09/print

FYI: Oil prices have been cut in half in six months, hitting a large swath of energy stocks in the process. But where there’s pain, there’s usually opportunity, making now a good time to take a close look at mutual funds that offer exposure to energy stocks.
Regards,
Ted
http://investorplace.com/2015/01/best-mutual-funds-energy-stocks-now/print

China warning from BofA. Attention grabbing headline.
Bank of America warns of 'lethal' damage to China's financial system as deflation deepens
'Deflation, Devaluation, and Default' loom in China this year. The denouement for Shanghai's bourse will not be pretty, says the US bank.
By Ambrose Evans-Pritchard7:50PM GMT 08 Jan 2015
China is at mounting risk of a financial crisis this year as growth sputters and deflationary pressures trigger a wave of defaults, Bank of America has warned.
The US lender told clients that a confluence of forces are coming together that threaten to chill the speculative mania on the Shanghai stock exchange and to expose the underlying fragility of China’s $26 trillion edifice of debt.
“A credit crunch is highly probable,” said the bank in a report entitled “Deflation, Devaluation, and Default”, written by David Cui and Tracy Tian.
http://www.telegraph.co.uk/finance/economics/11333928/Bank-of-America-warns-of-lethal-damage-to-Chinas-financial-system-as-deflation-deepens.html

FYI: The pharmaceutical sector, which had been witnessing several tax inversion deals over the last few months, is not likely to go down this route given the Sep 2014 notice issued by the U.S. Department of the Treasury. New rules imposed by the Treasury Department make such cross-border deals unattractive -- in fact, companies like AbbVie, Auxilium and Salix backed off from such agreements.
However, mergers and acquisitions (M&As) will continue to play a major role and are not showing any signs of slowing down. Auxilium, which terminated its merger agreement with QLT, will be acquired by Endo in the first quarter of 2015. Other acquisition deals announced recently include the upcoming acquisition of Cubist by Merck and that of Avanir by Japanese firm, Otsuka. (Read: 3 Biotech ETF Winners from 2014’s Best Performing Sector)
Regards,
Ted
http://www.zacks.com/stock/news/159623/can-pharma-etfs-continue-their-uptrend-in-2015?article_id=159623&type=BLOG

FYI: China region funds have outperformed the S&P 500 as well as foreign developed and emerging markets funds in the past 10 years.
The average China fund would have turned a $1,000 investment made on Dec. 31, 2004, into $27,979 by Jan. 7 this year, according to Morningstar data. Where would the same investment be in the broad U.S. stock market today?
Regards,
Ted
http://license.icopyright.net/user/viewFreeUse.act?fuid=MTg4MjU1MDg=
Enlarged Graphic: http://news.investors.com/photopopup.aspx?path=WEBlv010915.jpg&docId=733972&xmpSource=&width=1000&height=1152&caption=&id=733973

Charles, thank you for your sacrifice, dedication, and professionalism that you have consistently shown MFO since you joined. Your work complements David's wonderfully.
As a former engineer, I am a stats/numbers junkie. Perhaps that's why I so appreciate your compilation of data. But I especially enjoy your ability to post not just the overall risk/return profile for the life of the fund, but also it's 1, 3, 5, and 10 years. Also your risk/return profile over a full market cycle is unmatched by anything I've ever come across.
My question to you, Charles, is how difficult would it be for you to produce the depth of information you have provided in the above example for MAPIX, but for any fund that we input in the risk profile search? I know that is asking a lot of you. But I thoroughly enjoy this extra depth of information. Keep up the great work!
Sincerely,
Mike_E