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Weekly CIO Commentary

A bumper crop of portfolio potential

Saira Malik
Chief Investment Officer
Saira Malik photo

Bottom line up top:

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Portfolios are sure to be stuffed with increased equity allocations this holiday season, but investors should be mindful of extended valuations and other risks aplenty.
CIO weekly commentary chart 2

Portfolio considerations


Over the river and through the woods to consistency we go. Historically an effective hedge against inflation, real assets appear well-suited to the current macro backdrop. Farmland looks particularly compelling because it provides basic necessities, and demand for the goods it produces should be resilient in a weakening economic environment. We analyzed annual returns for farmland going back to 1970 and found that since then it has produced a positive result for every recessionary year except 2009. In fact, farmland’s average return during recessionary years in this time frame was +12.6%, nearly double the 6.6% inflation rate and higher than the S&P 500’s gain by more than 4.5 percentage points. Farmland has outpaced inflation by close to 6% in non-recession years as well.

Volatility of returns for farmland since 1970 has been significantly lower than that for U.S. equities, with a standard deviation of 6.5, compared to 17.2 for the S&P 500. An allocation to farmland may therefore improve a portfolio’s Sharpe ratio (a measure of risk-adjusted return), offering downside protection amid an anticipated economic slowdown in 2024.

Fertile fields without mountains of debt. From a balance sheet perspective, rising and elevated interest rates make it more expensive for farmers to purchase assets using debt. But higher borrowing rates typically occur when inflation is high (usually linked to increased prices on commodities like natural gas, wheat or steel), as we have seen since March 2022. Because farmland produces necessary agricultural commodities, it may fare better than other real assets during inflationary periods, enabling farmers to pay down debt and increase equity in their businesses. And if land is on their balance sheets, it will likely appreciate if the profitability of crops grown on that land increases. Farmers tend to be conservative when it comes to leverage, which has helped cushion them from asset bubbles and subsequent deflation. Despite volatile interest rates, the debt-to-equity ratio for farmers has remained relatively stable since the late 1980s, averaging 15.7% between 1990 and 2023, according to the USDA.

CIO weekly commentary chart 2 
Farmers tend to be conservative when it comes to leverage, which has helped cushion them from asset bubbles and subsequent deflation.

Nuveen’s Global Investment Committee (GIC) brings together the most senior investors from across our platform of core and specialist capabilities, including all public and private markets.

Regular meetings of the GIC lead to published outlooks that offer:

Related articles
Investment Outlook CIO commentary archive
Access previous issues of Saira Malik’s weekly CIO commentary on strategy and portfolio construction.
Weekly Fixed Income Commentary Treasury yields fall on softer U.S. inflation data
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Investment Outlook The Fed remains on hold, but proceeding carefully
The U.S. Federal Reserve kept interest rates unchanged once more at the November policy meeting, as expected.



All market and economic data from Bloomberg, FactSet and Morningstar. 

This material is not intended to be a recommendation or investment advice, does not constitute a solicitation to buy, sell or hold a security or an investment strategy, and is not provided in a fiduciary capacity. The information provided does not take into account the specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on an investor’s objectives and circumstances and in consultation with his or her financial professionals.

The views and opinions expressed are for informational and educational purposes only as of the date of production/writing and may change without notice at any time based on numerous factors, such as market or other conditions, legal and regulatory developments, additional risks and uncertainties and may not come to pass. This material may contain “forward-looking” information that is not purely historical in nature.

Such information may include, among other things, projections, forecasts, estimates of market returns, and proposed or expected portfolio composition. Any changes to assumptions that may have been made in preparing this material could have a material impact on the information presented herein by way of example. Past performance does not predict or guarantee future results. Investing involves risk; principal loss is possible.

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