Portfolio balancing

When compared to other asset classes, investments in farmland historically show an attractive risk-return relationship. Furthermore, farmland is uncorrelated with the 10-year US Treasury Bond, shares, gold and property. Thus, farmland is particularly relevant for portfolio optimisation purposes.

While the risks and expected returns from property and Treasury bonds are slightly lower than for farmland, the risks associated with gold and shares are much higher. At the same time, the returns on gold and shares are expected to be lower, since these assets fluctuate strongly in periods of recovery and not least in periods of recession. Thus, shares dropped significantly during the financial crisis while gold improved significantly.

Farmland can benefit an investment portfolio consisting primarily of shares and bonds by creating a stabilising effect on returns and a reduction of the inflationary and overall portfolio risk.



The figure shows the expected quarterly returns and standard deviations for selected asset classes in the period 1991-2009.