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Building a Canadian farmland portfolio using factor analysis.

A Canadian portfolio of farmland, raw acre weighted by province, generated a benchmark return of approximately 8% over the last decade on an unlevered basis. Based on Veripath analysis, a suitably reweighted portfolio could have outperformed this by as much as 50% with minimal change to the risk profile.

Veripath’s proprietary portfolio construction model utilizes a number of factors including those below to reweight each provincial acre allocation:

– Productivity adjusted pricing
– Sharpe ratio
– Correlation to inflation
– Up/down return profile
– Market liquidity
– Average farm leverage levels

Using this approach, a factor adjusted Canadian portfolio would reduce the weighting to Ontario (down ~25% to 6% from 8%), while increasing the weighting to Alberta, Manitoba and Saskatchewan (up ~10% to 88% from 81%).  Full Report can be found here.