Farmland and Timberland investing are checking lots of institutional investor boxes at the moment. And whilst investing in these real asset classes has some similarities with more familiar real estate and infrastructure funds, trees and crops require a different level of due diligence. Knowledge of which, investors are growing using our Real Assets feed. With noticeable interest by European Investors in exposure to the U.S. markets.
But what are the inflation protection properties of land based asset classes? Logically, one would assume that correlations between CPI and cash yields from Farmland and Timberland should be high. The goods they produce form important constituents of the CPI basket. But sensitivities and the inflation hedge lag will differ between row & permanent crops, lumber and pulp.
And how does historical performance compare to real estate, infrastructure, equities and bonds. The answer to this question only tells part of the story. The real question today is whether de-globalisation and politically renewed interest in food security will drive better performance going forward?
But it's not all about performance and income: Farmland & Timberlands low or negative CO2 emissions per USD invested, add to the trend amongst European Investors to move towards a net-zero portfolio.
And equally important, in a world where bond-equity correlations have increased, is there a free lunch available in the form of diversification?
Today, ownership of Farmland and Timberland by institutional investors is tiny. Tomorrow, that may change.