What role could agricultural assets play within my current investment portfolio?

February 21, 2017 4:37 pm

To kick off our 5 tips to ensuring your Australian agricultural investment is a success, we focus on your portfolio. Is agriculture a good fit and how moving forward there is clarity on expectations and vision.

Many professional investors have overlooked top performing agricultural assets in the past. This has been for multiple reasons around the risks associated with the seasons, climate, operational and poor management. Like other investment classes, poor management delivers poor results, but well-managed operations can deliver strong long-term results and are investible. Not many asset classes offer a wide range of opportunities that can drive returns at relatively low risk.

International investors are starting to recognise these investment opportunities across a range of segments within agriculture and its associated supply chains as wealth preservation and tangible assets are becoming a haven for unallocated capital.

Understanding how agriculture will fit within an investment portfolio is essential as it helps guide the purpose, vision and future direction of the asset utilisation plan. Having clarity around investment expectations also helps to guide the strategy which contextualises the potential risk and reward.

In order to ensure a positive outcome is achieved investors must be very clear with management regarding expectations and future vision.

Modern portfolio theory introduced in the 1950’s is the original architecture used to build a portfolio that will maximise returns but also minimise risk and introduce the theory around portfolio diversification.

Agriculture is not strongly correlated to many traditional major asset classes. Equities both international and Australian are negatively correlated and from a wealth preservation perspective, agriculture can add long-term stability to a portfolio.

Agriculture has a positive correlation to inflation and can act as a hedge against inflation at a time when inflation looks to rise.

Well performing negatively correlated assets are useful for inclusion in a portfolio as the act at smoothing out overall returns over time.

Agriculture as an industry will contribute to the growing global demands with a sustainable approach to food production. Long-term environmental and human health is dependent on professional management of soil, plants and animals.

In more recent times agriculture has been invested in and can act as the impact investment for a portfolio. Agriculture can deliver acceptable economical returns whilst also providing strong positive environmental impact and demonstrate social returns throughout the supply chain.

Screen Shot 2017-02-24 at 11.14.39 AMSource: Australian Farmland Values 2015 report

Agricultural assets are tangible and seen as a real asset class, you can touch and feel it and it can be enjoyed as part of a form-filling lifestyle.

Impact Ag has had experience in structuring agriculutral invesments for the investor that meet their risk and return requirements, utilising varied structures and business models.

Click here to find out how.