A novel approach to optimizing a global farmland portfolio

Nuveen Natural Capital believes that a globally diversified portfolio is the best way to invest in farmland assets. By diversifying the crop mix and geographies, investors can protect against external physical and market risk factors such as weather, crop price volatility and government intervention and regulation. But this leads to a question: what is the optimal way to construct a globally diversified farmland portfolio?

In this paper, we examine Nuveen Natural Capital’s approach to portfolio construction, outlining how we apply risk and optimization modeling to build risk-return efficient portfolios of farmland investments. We also demonstrate how an investor’s approach to currency risk has a material impact on regional allocations. Finally, we demonstrate that there are material allocation differences in optimal portfolios depending on whether an investor’s investment objective is to maximize cash yield, total return or both.