By Rob Carrick
High net worth investors have dip into a different approach to portfolio-building
With both bonds and stocks making wild swings recently, investing is getting more and more stressful.
How to calm the anxious investor? Perhaps a more pastoral approach to portfolio-building. Literally.
In recent years, farmland has gained some currency as an asset for high net worth investors. One firm using it in client portfolios is Nicola Wealth Management in Vancouver.
“Historically, returns have matched the TSX over the last 60 years or so, but they are uncorrelated,” John Nicola, the firm’s CEO, said via e-mail.
Investments that are uncorrelated to stocks are in high demand right now, especially with bonds looking shaky in recent days. As packaged in the NWM Farmland LP, investors get access to acreage in Alberta, Saskatchewan, Manitoba and Ontario that is purchased and leased back to farmers in return for rental income (there is no exposure to the crops being grown). Mr. Nicola considers this investment to be fairly low risk because the land is not mortgaged. Rents can fluctuate, however.
Mr. Nicola said the net rental income from NWM Farmland LP should come in between 2 and 3 per cent after baseline fees of about 1.15 per cent (administration and performance fees may also apply). There’s also potential for capital appreciation driven by the fact that there is a fixed amount of farmland available while global demand for food is rising.
Mr. Nicola said that liquidity limitations mean the farmland LP is suited only to long-term investors who favour hard-asset investing. There are no redemptions in the first three years and a 2-per-cent redemption penalty after three years. One calendar quarter is required as a redemption notice.
The minimum investment for NWM Farmland LP is $25,000. Mr. Nicola said the fund accounts for roughly 10 per cent of the real estate allocation for client portfolios, or about 2 per cent of the total portfolio.
It’s possible to get exposure to farmland through U.S.-listed real estate investment trusts. One is Farmland Partners Inc. (FPI-N4), which owns farmland across the United States, while another is Gladstone land Corp. (LAND-Q5). Gladstone shares are up about 20 per cent this year, while FPI shares are down almost 3 per cent. The yield for both is about 4.9 per cent.