Mission - ‘To provide Investors with a genuine alternative inflation hedge in an increasingly uncertain and volatile world’
Article One - Agriculture
In the first of our series on ‘alternative investments’ we look at agriculture and why this could be a suitable investment.
There are many agriculture funds which invest into stocks of companies involved in Agriculture however these stocks will behave in a similar fashion to other stocks. Agriculture stocks are generally considered part of the commodities sector and will perform in a similar pattern.
Agriculture stocks will therefore be volatile and not suitable for a ‘cautious investor’. The agricultural sector however offers significant opportunity in the direct lending sector. After the global financial crisis banks stopped lending to small and medium sized business and this included farmers and the agriculture sector.
Not only did banks stop lending but they have merged and consolidated and even in 2017 over 700 branches were closed. With changing regulation it has become unattractive for banks to lend to farmers and other similar business’s as the costs for them are very high.
Around 2007 an opportunity was therefore created for ‘direct lending’ to the agriculture sector to fill the void left by banks. The benefit of this to investors is that this investment is completely uncorrelated to equity investment and volatility is very low.
Lending funds in this sector focus on agricultural, horticultural and small rural business’s. Over the last 12 years one of the funds we promote has arranged 15,000 loans to these business’s with a total value of £1 Billion. With these loans being asset backed the risk is very low of default and often loans are paid back early.
Typically when these loans are arranged the assets backing them are agricultural machinery, land or property. Over the last 5 years this type of lending has become more main stream and acceptable and as a result many large institutions are now investing into these type of funds.
This sector has also become attractive to international investors as it offers a relatively secure low risk return of historically between 5 to 7% per annum in GBP. With the GBP currently being very weak historically against major currencies like the USD & Euro this fund offers GBP focused investors earning USD or Euros a great opportunity to buy into a fund offering good low risk returns in GBP at a very good conversion rate.
Summary:
Agriculturally lending has proved over the past decade it is a suitable investment for those looking for modest returns with low volatility.
As with any investment this should be looked at as a minimum of 5 year investment.
With an increasing global population there will be more strain on farmers to become more efficient and produce more so lending to this sector will remain strong.
This content provides a taster with regard to why agriculture is becoming a suitable and popular ‘alternative investment’.
In the next few weeks we will continue our series on ‘alternative investments’.