North American farmland investments for retail investors
LE3 .A278 2020
Bachelor of Business Administration
Agriculture is an ancient practice that has shaped many cultures and societies as we know them today; given the historical importance of farmland and the colossal demand forecasted for agricultural output going forward, farmland is considered inherently valuable. With that said, it has traditionally been a private, family-owned asset on a global scale, excluding most retail investors from owning it within their investment portfolios. The literature indicates that should farmland become more liquid and available to more investors, they should seek to own it given its attractive profile as a diversifying inflationary hedge. This dissertation seeks to elaborate on this theory and update these findings with current data. Further, this research aims to highlight the lack of farmland investment opportunities for individual middle-class investors. The study uses North American farmland data to calculate farmland returns from 1995-2018, as well as Farmland Real Estate Investment Trust (F-REIT) data to calculate the returns of the American listed farmland securities over the period of 2014-2018. The results of this study, using Sharpe Ratio optimization, indicate that direct farmland investments should comprise an allocation within the average middle-class investor’s portfolio. This is consistent with the literature (which is mainly focused on earlier time periods). Results also determined, benchmarked with the correlations of farmland with their publicly listed representatives (the two F-REITs), that there are no effective investment vehicles available to middle-class investors that adequately reflect the true risk-adjusted return profile of farmland.
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