The Portfolio Diversification Impact Of A Farmland Real Estate Investment Trust

Abstract

An analysis of Canadian farmland risk and return on investment shows that a Farmland Real Estate Investment Trust (F-REIT) would have been a reasonably good investment over the past 35 years. Investors who desire either low or high risk portfolios would not have benefited from an F-REIT investment. However, investors in the medium risk category could have improved the financial performance of their portfolios by including an F-REIT investment. The financial gains from F-REIT result from a level of risk that is lower than REITs and stocks, an expected yield that is greater than for bonds, and a low correlation with other financial asset returns. The benefit for the agricultural market is that F-REITs inject new equity by purchasing land from retiring farmers and leasing to farmers who want to expand. The benefit for the non-farmer investor and institutional investors is improvement in overall portfolio financial performance.