While timberland and farmland are the most traditional of asset classes, the advantage of including real assets in a portfolio comprised mostly of financial securities is now driving unprecedented interest by investors. Global demographics are straining global natural resource production capabilities. It is becoming increasingly difficult for production expansion to keep up with demand growth, thus making investment in resource real estate especially valuable and timely.
Renewable resources are sustainable and non-depleting, unlike mines or oil and gas wells. Since productivity continues in perpetuity, renewable resources look even better for longer-term investment strategies.
Population in Emerging Markets (EM) is more than twice the population of Developed Markets. EM GDP growth per capita is more than twice the growth of developed countries. Lower income levels, where needs are more basic, have greater marginal demand for natural resources.
* Euro Area = 17 Countries
Source: The Economist, Pocket World in Figures, 2021 Edition
The National Council of Real Estate Fiduciaries (NCREIF) has been methodically gathering transaction based data on farmland for 30 years, longer for timberland. These summary statistics show several important attributes:
• Higher risk adjusted returns
• High correlation to CPI
• Modest correlation to each other
* Standard Deviation
Source: NCREIF Data 1991-2020
The Sharpe Ratio is calculated by annually subtracting T-bill rates (a proxy for the risk free rate) from the annual asset class return and dividing by the standard deviation of the asset class return series. The higher the Sharpe Ratio, the higher the return per unit of risk. The strategy Farmvest employs to improve investment portfolio performance is to identify superior managers and/or assets within global farmland and timberland.