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Inflation hedging ability of
Inflation hedging ability of
natural capital investments
Real assets, such as farmland and timberland, have shown a strong ability to hedge against inflation and long-term returns have far outpaced the inflation rate.
The current economic environment highlights the importance for investors to design portfolios that protect against inflation. This paper uses historical data to analyze the ability of timberland and farmland investments to act as a hedge against inflation over time and even for different species and crop types.
Our research shows that farmland and timberland investments continue to serve as a hedge against inflation and provide tools for investors to build resilient portfolios. Both asset classes offer investors a compelling alternative to protect the purchasing power of investment portfolios supported by returns that have historically outpaced inflation rates, a strong positive correlation between returns and inflation, and where increases in inflation are associated with more than equivalent increases in returns.
Past performance is no guarantee of future results.
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The earth’s natural capital can be thought of as a stock of assets—air, lands and waters and their biodiversity— that yields a flow of benefits or ecosystem services over time. The flow of these benefits includes provisioning services such as food, fiber and timber as well as a broad range of regulating, supporting and cultural ecosystem services that drive the global economy and human wellbeing.
We provide the case for investing in timberland through five key principles, including the inherent carbon benefits of the asset class that further enhance the case.
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