BPM:

Farmland

as

a

Portfolio

Enhancer

By Stephen Johnston

October 25, 2024

Excerpt from article:

Canadian farmland is an embryonic asset class, and many investors are unfamiliar with its core characteristics. As the manager of the Veripath Farmland Fund, I have seen firsthand how useful this asset can be to investors. 

To start, it cannot be over emphasised that farmland is not a real estate investment. Farmland is a unique, non-depleting commodity capital asset that discounts the production of an infinite series of crops with highly inelastic demand and low stock-to-flow and is completely consumed with no recycling.

The best way, therefore, to discuss farmland as a portfolio addition is to summarize how its unique features lead to a core of useful behaviours, particularly for long-duration investors like pension plans.

Firstly, farmland is a diversifier with low long- and short-term correlation to public equities and bonds. Simply put, it diversifies when you need it most during public market events. For example, because of its limited correlation to bonds and nominal interest rates, prices were unaffected during COVID and during the recent rate-hiking cycle.

Original article here