The role of agriculture in a diversified portfolio

While the importance of diversification in a portfolio is well understood as a way of offering protection during market volatility, investments in agriculture can be great additions at any time, thanks to their low risk and stable returns.

Agricultural investments such as farmland have been around for many years, but not all are equal. Australia, for example, is considered a best-in-class destination for the sector based on its low subsidies, very efficient farmers, quality products, and strong export markets.

Assets in this sector provide good returns and are excellent portfolio diversifiers, offering a low correlation to traditional asset classes, such as shares and bonds, especially during the volatile times we’re experiencing now. Growth Farms CEO Martin Newnham says agriculture assets should be considered as long-term investments – usually a minimum of 10 years is recommended. “Some private equity investors might prefer to churn assets, but I don’t think that suits an agricultural investment,” he says. “A shorter time period often limits the returns investors can achieve, so a longer horizon is best for this asset class.”

Is there a right time to invest in agriculture?

Newnham says there’s no “right time” to invest in agriculture. “We think the right time is when an investor is ready,” he says. “In any market, whether it’s a strong one or if commodity or land prices are high, careful deployment is what’s important to the success of the investment. It’s more about time in the market than timing the market.”

He adds data also supports the benefits of long-term agriculture investments. “This asset class has delivered high single digit, to double-digit returns over a long period of time, which is excellent for this space,” he says. “In Growth Farms case, it has consistently delivered more than 10 per cent per annum for its clients over the past couple of decades.”

What type of investor should invest in agriculture

Growth Farms’ client base currently includes large institutional investors, high-net-worth individuals and family offices. “But agriculture investments suit all investors,” Newnham says. “We’re now seeking to tailor our offering by adding some syndicated products and funds – which makes the sector more accessible. It’s a broad brush in terms of people wanting to get exposure to this sector, and these new offerings mean people don’t have to be multimillionaires to participate.”

What sets Growth Farms apart?

For two decades, Growth Farms has delivered excellent returns, but a key success factor is its strong client relationships. “Each client has a dedicated portfolio manager who manages the manager or team on their farm as well as the strategy,” Newnham says. “And we’re not so big that investors can’t access management or the board if they want. While we have a good amount of assets under management, we pride ourselves on offering a family farming approach.”

This approach is helped by the location of its key staff and offices. “Our portfolio managers and administration staff are located in regional areas and embedded in those communities,” Newnham says.  “This is unique for this type of business and means our team have formed very strong relationships with clients as they live and work in either the same area or in the same environment.”