Beyond diversification: a geographical focus on farmland and real estate
Real estate and farmland investments can be challenging to assess properly. But a focused effort combining a macro view of the world with localized assessment of individual assets and farms can help our clients create portfolios designed to meet their long-term goals.
We believe real estate and farmland investments should be an integral part of almost all investors’ portfolios — regardless of the prevailing macroeconomic backdrop.
Managing both farmland and real estate investments requires deep research and localized knowledge of region-specific structural trends.
Taking a global approach to diversify real asset exposures by geography and asset type infuses a portfolio with natural hedges that are increasingly necessary in the modern world.
Through our conversations with clients, we know they invest in alternatives for a number of reasons: inflation protection, income generation and, of course, diversification beyond stocks and bonds. And as global investors, we agree it makes sense to use alternatives in this way. But we also think investors would do well to take the concept of diversification in particular to the next level by focusing on specific geographies and leveraging local, specialized expertise.
We think this is particularly true when it comes to investments in real estate and farmland, which, by their nature, are highly idiosyncratic and are affected by local dynamics in the environment, economy and political backdrop. A soybean farm in Brazil, for example, has little in common with an almond farm in Australia. Similarly, fast growing cities like Tokyo, Berlin and Los Angeles share some broad demographic trends but have very different localized real estate opportunities.
At the same time, however, these asset classes are also driven by broad global trends such as changing demographics and technological advancement that can identify broad regions that could be primed for growth. That’s why we think it’s important to approach real estate and farmland investments through a dual approach: understanding the macro factors that make specific areas of the world and certain types of investments potentially attractive, while also relying on local experts who can uncover value in highly specific ways.
In the following sections, we offer a thousand-foot view from Nuveen’s Chief Investment Strategist explaining how real assets are positioned in today’s environment, before diving into a region-by-region look from our on-the-ground portfolio management teams who are identifying specific opportunities. We think that by offering examples of how we are approaching specific investments, we can explain our overall view about the best ways to identify value across investments and regions. We then bring it all together with views from Nuveen’s Solutions team discussing ways that investors can use these asset classes to build outcome oriented portfolios.
Real estate and farmland investments can be complicated and potentially difficult to assess correctly. But we believe that a focused effort that combines a macro view of the world with localized assessment of individual properties and farms can help our clients create portfolios designed to meet their long-term goals.
Download Nuveen knows: beyond diversification
3 Nuveen Real Estate
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 is no guarantee of future results. Investing involves risk; principal loss is possible.
All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as
to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.
Sharpe Ratio (Risk-Adjusted Return) is a risk-adjusted return measure calculated using standard deviation and excess return to determine reward
per unit of risk. The higher the Sharpe Ratio, the better the historical risk-adjusted performance. The “Shiller” P/E Ratio is a valuation measure that
uses real earnings per share (EPS) over a 10-year period to smooth out fluctuations in corporate profits that occur over different periods of a business
cycle. Bloomberg Barclays U.S. Aggregate Index represents securities that are SEC registered, taxable and dollar denominated. The index covers
the U.S. investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities
and asset-backed securities. Correlation is a statistical measure of how two securities move in relation to each other. Perfect positive correlation (a
correlation co-efficient of +1) implies that as one security moves the other security will move in lockstep, in the same direction. Alternatively, perfect
negative correlation (a correlation co-efficient of -1) means that securities will move by an equal amount in the opposite direction. If the correlation
is 0, the movements of the securities are said to have no correlation; their movements in relation to one another are completely random. The MSCI
ACWI ex USA Index captures large and mid cap representation across 22 of 23 Developed Markets (DM) countries (excluding the US) and 23 Emerging
Markets (EM) countries. With 1,853 constituents, the index covers approximately 85% of the global equity opportunity set outside the US. The FTSE
NARIET All REITs Index is a market capitalization-weighted index that and includes all tax-qualified real estate investment trusts (REITs) that are
listed on the New York Stock Exchange, the American Stock Exchange or the NASDAQ National Market List. The NCREIF Farmland Property Index is
a quarterly time series composite return measure of investment performance of a large pool of individual farmland properties acquired in the private
market for investment purposes only. The NCREIF Property Index (NPI) is a quarterly, un-leveraged composite total return for private commercial
real estate properties held for investment purposes only. The NCREIF Timberland Index is a quarterly time series composite return measure of
investment performance of a large pool of individual timber properties acquired in the private market for investment purposes only. The Russell 3000
Index measures the performance of the largest 3000 U.S. companies representing approximately 98% of the investable U.S. equity market. S&P 500
Index is a capitalization-weighted index of 500 stocks designed to measure the performance of the broad domestic economy. S&P GSCI Agriculture
Index has been designed to provide an exposure to the agriculture sector in commodity asset class on a total return basis. The S&P Global Timber
& Forestry Index is comprised of 25 of the largest publicly traded companies engaged in the ownership, management or the upstream supply chain
of forests and timberlands.
A word on risk
Investing involves risk; principal loss is possible. Debt or fixed income securities are subject to market risk, credit risk, interest rate risk, call risk,
derivatives risk, dollar roll transaction risk and income risk. As interest rates rise, bond prices fall. Foreign investments involve additional risks,
including currency fluctuation, political and economic instability, lack of liquidity and differing legal and accounting standards. Alternative investments
may be illiquid, there may be no liquid secondary market or ready purchasers for such securities, they may not be required to provide periodic pricing
or valuation information to investors, there may be delays in distributing tax information to investors, they are not subject to the same regulatory
requirements as other types of pooled investment vehicles, and they may be subject to high fees and expenses, which will reduce profits. Alternative
investments are not suitable for all investors and should not constitute an entire investment program. Investors may lose all or substantially all of
the capital invested. The historical returns achieved by alternative asset vehicles is not a prediction of future performance or a guarantee of future
results, and there can be no assurance that comparable returns will be achieved by any strategy. As an asset class, real assets are less developed,
more illiquid, and less transparent compared to traditional asset classes. Investments will be subject to risks generally associated with the ownership
of real estate-related assets and foreign investing, including changes in economic conditions, currency values, environmental risks, the cost of and
ability to obtain insurance, and risks related to leasing of properties. Real estate investments are subject to various risks, including fluctuations in
property values, higher expenses or lower income than expected, currency movement risks and potential environmental problems and liabilities.
Farmland investments are less developed, more illiquid, and less transparent compared to traditional asset classes. Investments will be subject to
risks generally associated with the ownership of real estate-related assets and foreign investing, including changes in economic conditions, currency
values, environmental risks, the cost of and ability to obtain insurance, and risks related to leasing of properties.
Nuveen provides investment advisory services through its investment specialists.
This information does not constitute investment research as defined under MiFID. In Europe this document is issued by the offices and branches of
Nuveen Real Estate Management Limited (reg. no. 2137726) or Nuveen UK Limited (reg. no. 08921833); (incorporated and registered in England and
Wales with registered office at 201 Bishopsgate, London EC2M 3BN), both of which entities are authorized and regulated by the Financial Conduct
Authority to provide investment products and services. Please note that branches of Nuveen Real Estate Management Limited or Nuveen UK Limited
are subject to limited regulatory supervision by the responsible financial regulator in the country of the branch