Investment Articles

Should you hold Alternative Investments in your portfolio?

So you’ve decided to reduce your exposure to equities in order to avoid the price volatility that seems to be driven by the latest piece of political rhetoric about national debt or economic growth. You’re no longer seeing the value of your investments rise and fall by considerable margins on a daily basis, and you’re sitting on a nice pile of ’safe’ cash. But you probably also need to find a home for your capital where it will grow at least in line with inflation, hopefully generate some income, whilst sharing little correlation with the performance of equities, bonds and other traded financial instruments.

So now is the time you start to consider alternative investments. but where do you start? Do you buy fine wine, rare stamps, farmland, timber or any other of the plethora of emerging alternative investment asset classes currently being touted as the ‘perfect’ investment?

I suggest that the first place one should look should be to their requirements, really establish the end goals you wish to achieve, and the limits you have in terms of liquidity, asset allocation for your alternative investments (as a % your total portfolio) and risk. From there you can, with enough research, discover which asset class might be the right alternative investment for you.

Let’s look at a case study, and see if we can match the Investor to an alternative investment asset class that offer the performance e and characteristics he or she is searching for.

John has a total pension portfolio of £250,000, held in a flexible Self Invested pension Plan wrapper (SIPP). John chose to move his assets into a SIPP some time ago in order to take more control over decisions affecting his investments, rather than be reliant on a Financial Advisor who can only advise on a couple of asset classes – equities and bonds.

John pulled 50% of his portfolio into cash 12 months ago, with the remainder held in defensive stocks and bonds. He has decided to allocate 10% of his overall pension to non-financial, real-asset alternative investments. He does not need income, and he is prepared to hold an asset for up to 10 years, aiming to capture capital growth. John has self-certified as a Sophisticated Investor, but does not wants to invest in funds, he wants tangible assets.

Taking into account John’s position and requirements, it might be suggested that the following alternatives may be a good starting point for Johns research process:

Fine Wine
Land – Particularly productive agricultural land
Timber Properties
Collectibles

All of these assets display certain characteristics that John might find particularly appealing. Fine wine – when selected and managed by an expert – has been shown to deliver returns of up to 20 per cent per annum. The forward looking story looks good too, as increasing demand from Asia, particularly a growing wealthy class in China is demanding more fine wines that the world can currently produce, and they are prepared to pay increasingly large sums of money as wines get older and rarer as more of a particular year is consumed. This increase in demand for a finite asset is what drives capital growth, and a good wine investment manager might help John to pick and choose a suitable portfolio, or cellar’ of wine and also advise, perhaps on a discretionary basis, when to buy and sell to maximise profit and minimise risk. Also, the performance equities has absolutely no bearing on the investment performance of fine wines, allowing John to collect long-term capital appreciation.

Much the same thing can be said for collectible such as rare stamps, where again demand is driven by increasing rarity and increasing demand from wealthy overseas and domestic collectors and investors.

Agricultural land also benefits from increasing demand, as populations in developing economies grow and incomes rise, they demand more protein (meat), which requires many more resources to produce than their traditional grain-based diets. It takes about 3kg of grain to produce 1 kg of beef, so this adds considerable pressure to current agricultural productivity. At the same time we lose millions of hectares of arable land every year to urbanisation, degradation and climate change, so it is likely that farmland will continue to become more valuable over time, again giving John the long-term capital appreciation, as well as separation from financial markets that he requires. This would also generate income from farm rents, or perhaps even through a joint venture farming agreement that would allow John to share in the profits from harvesting.

Forestry investment may also offer John a potentials alternative. Essentially, purchasing a timber-producing property, through leasehold or freehold, and simply sitting back and watching the trees grow bigger and more valuable each year, a biological process that cannot be interrupted by an economic crisis. The actual price of timber also moves every year, having risen by an annual average of 6% for the past 100 years. This means John capture true growth in its truest sense. A huge number of institutional investors are investing in forestry, including pension funds, university endowments (Harvard and Yale to name but two) and hedge funds, all of which are investing in forestry for long-term capital growth. Again, the same principles of supply and demand hold true for forestry. We require more timber as the enormous populations of China and India enter into their most aggressive and resource-intensive phase of growth, requiring more timber for paper, biomass and construction, whilst at the same time natural forests are now protected, creating huge demand for sustainable sourced plantation timber.

In summary, there are a range of alternative investments for John to consider, and really the best thing for him to do would be to conduct his own research in to each subject, and speak to a range of Advisors with specific experience of each individual asset class and choose to work with a professional that can substitute a good track record of investment selection/management for the options he chooses. So, speak to a few fine wine brokers and measure their pitch against the knowledge gained from researching the asset class. Speak to a forestry investment advisor and agriculture investment advisor, and choose to work with someone that knows their sector, and has delivered success for Clients previously. Heck, why not ask to speak to any potential investment partner’s previous clients; I’m sure that any Advisor worth his salt would be proud to have a Client sing their praises.

David Garner is Partner at DGC Asset Management, an alternative investments boutique specialising in property transactions in the agriculture and renewable energy sectors.

In the current investing climate many investors are seeking out alternatives to traditional investment assets in an effort to boost poor returns and bolster the limp performance of their pension portfolios. While stocks and shares continue to display the kind of up-and-down volatility that would make a rollercoaster jealous, real-assets including fine wine, stamps, land and forestry have all continued to grow in values as rising global incomes combine with a growing global population to boost demand against a backdrop of limited supply.

Whenever supplies of an asset are limited and demand increases, we see the value increase as buyers compete for the best assets, so those investors in control of finite resources are likely to continue to capture capital growth regardless of the performance of the wider economy.

Whilst in is certainly true that some alternative investment assets rely on the existence of wealth for their end-use market; for example stamps and fine wine rely on the existence of wealthy buyers, it is also true that certain essential assets will enjoy a demand even if the global economy were to collapse tomorrow. These safe haven alternative investments include agricultural land, energy-generating assets, infrastructure and commodity driven properties such as forestry investments.

There is a limited global stock of land suitable for agricultural production and demand for food commodities and feedstock for animal feed and biofuels in growing exponentially as developing nations expend their populace and rising incomes lead to greater consumption of commodities. Indeed the giant populations of India and China are entering their most resource-intensive phase of growth, just like the west during the industrial revolution. The difference here is that the populations and resource requirements of these countries is much larger. This makes agricultural land a precious resource that is likely to become one of the most valuable assets on earth. Not only that, but goof quality farmland produces annual income from the production and sale of food commodities, so income streams also rise as food prices increase. It is worth noting that the amount of arable land per person on the plant has halved since only the 1960’s, going some way to explaining why so many institutional investors are holding more and more agriculture investments.

Renewable energy investments that produce income from solar, wind or agricultural crops are also seen as a potentially great alternative investment opportunity as they continue to generate revenue regardless of dividend performance in traditional investment markets. As long as the wind keeps blowing and the sun keeps shining, those in control of renewable energy investment assets will continue to earn up to 20 per cent per annul income yields based on current project establishment costs.

For the long-term investor, forestry investments continue to grow in any economic weather, because the majority of financial returns is actually driven by the biological growth of trees, not the performance of the economy. Whilst a relatively buoyant economy is essential in order for there to be demand for timber products, it is growth in emerging market economies what will drive future demand, and so investors who own a stake in a commercial forestry investment property close to emerging markets are likely to capture non-correlated growth and be able to create substantial revenues from the sale of essential commodities as trees turn into valuable timber stands.

In summary, alternative investments are popular because they generate returns not dependent on traditional markets, but investors should always be careful as these kinds of real-asset alternative investment all carry asset, location, sector and counterparty specific risks that many investor may not recognise or be able to screen for, so the use of an experienced consultant with a good track record of identifying successful alternative investment assets is essential in order to avoid undue risk and maximise upside potential.

David Garner is Partner at DGC Asset Management, an alternative investments boutique specialising in property transactions in the agriculture and renewable energy sectors.

Whilst forestry investments are seen by many institutional and private investors as a potential safe haven from the volatility associated with traditional asset s like equities, at the same time there are a number of variables linked to the general economy that do have a significant bearing on the performance of the asset class.

For the most part, current market demand for timber in any given location is the biggest influence over timber prices. As with any commodity, when stocks of the product are high and demand is suppressed then prices fall as assets are sold off at knockdown prices to create revenue. Likewise, when supplies are limited and demand is high, then we see the opposite happen; commodity prices rise as buyers compete for the best quality and indeed quantity.

In fact, it is worth touching on the cyclical nature of any commodity market, but especially soft-commodities. If a poor global harvest causes a shortfall of wheat, then prices rise, as the price rises, farmers plant more of the crop the next year as the higher price makes it more profitable. So the next year you have a surplus of supply as more acres are sown to wheat and subsequently the prices fall. And there you have it! A beginner’s introduction to the basic rule of commodity price cycles.

So we have ascertained that demand affects prices, but what impact is that likely to have on the performance of forestry investments? Well the answer in short is not as much as one would expect. A number of credible academic studies have revealed that forestry investment returns are driven by the biological growth of the tree into valuable timber stands (605 of returns), whilst timber price appreciation accounts for just 6%, and besides, when prices are depressed, timber growers simply leave their trees to grow, getting bigger and offsetting and drop in timber prices, an action known as storing value on the stump.

One must also consider that demand for timber is regional, which effectively means that a forestry investment in one area might perform markedly better than a timber investment in another area, simply because demand for wood products in region A is much higher. I for one have always found it to be quite misleading to use global statistics to define the potential performance of a local property-based investment such as forestry. Let’s look at like this; housing starts in the USA are low because the economy is depressed so timber prices are low due to a low demand (fewer people and businesses are building or remodelling homes), whereas in China, India and Central America, demand is increasing daily as both countries enter into their most resource-intensive phase of growth, building houses, infrastructure and demand more biomass for energy production. It goes without saying then that a timber stand in Florida might be worth less today than a timber stand in Latin America where demand is much higher and the property is better positioned geographically to participate in the supply chain in the region.

In summary, a range of factors affect demand for wood products and therefore the potential performance of forestry investments, but these variable are not global but local, so one must look to the dynamics of the market most relevant to the location of a particular forestry investment if one is to plan and project effectively and accurately.

David Garner is Partner at DGC Asset Management, an alternative investments boutique specialising in property transactions in the agriculture and renewable energy sectors.

Agricultural Productivity and Commodity Prices

This article covering the effect of commodity prices on agriculture investments has been produced for the purpose of providing quality reference material for the prospective Investor considering the sector, specifically for the Investor wishing to better understand to relationship and influence of commodity prices and agricultural productivity in agriculture investments.

Investors are attracted to the agriculture sector for a number of reasons; not least the undeniable fundamental trends of growing demand and contracting supply likely to drive higher asset prices and revenues in the future. Farm revenues at the very basic level are a combination of agricultural yield multiplied by commodity prices, so to better understand the performance of this asset class, we should look at commodity prices and productivity in a historical context in an effort to ascertain whether higher prices are here to stay, or part of a longer term price cycle.

At present, humankind utilises approximately 50 per cent of accessible, productive land for agriculture. Put another way, half of the Earth’s surface that is not desert, water, ice or some other such unusable space such as urbanised areas is used to grow crops.

With current emphasis firmly upon increasing productivity to meet current and future demand for food, feed and fuel from an expanding, wealthier global population, the fact that we only use half of the usable global stock of farmland indicates that we should be able to simply bring more land under agricultural cultivation through the application of well-placed infrastructure and technology investments. Unfortunately, the situation as always, is not quite as simplistic as that. In fact, the land we do not currently use for agriculture remains so because it accommodates vital natural ecosystems, is located in areas of conflict, or is simply not capable of producing commercially viable yields at current commodity prices i.e. the revenue created from the land does not cover the cost of the farming operations due to poor yields.

Before the introduction of what can be perceived as modern agricultural practices, the global population ebbed and flowed at around 4 million people, rising when access to food was abundant, and falling in times when food was hard to come by. These people existed as hunter-gatherers collecting the food they consumed for survival on a daily basis from nature, and therefore the size of the human race was intrinsically limited to a sustainable level. To put this into context, up until the introduction of modern agriculture, the global population was roughly half the present day population of London.

Then, some 10,000 years ago, modern agriculture was born, presenting us with the ability to cultivate plants and rear livestock in a concentrated fashion, enabling us to feed ourselves regardless of the vagaries of nature.

As our population continues to expand past the current level of 7 billion and towards the commonly accepted total carrying capacity of planet Earth of 13 billion, with most think tanks believing the global population will peak at around 9 billion people between 2030 and 2050, we must continue to increase productivity not only to feed ourselves, but also more recently for biofuels as oil supplies diminish and also for livestock feed to sate the desire for meat from an increasingly wealthy, urbanised population in Asia.

Initially, increases in productivity to meet growing demand have come from simply cultivating more land. But as the global shortage of suitable land continues to diminish, we have relied much more heavily on the increasing use of fertilisers, herbicides, fungicides and water to increase yield, certainly within the last 50 years.

Between 1961 and 1991, global cereal production doubled, mostly due to the introduction of nitrogen based fertilisers, commonly referred to as the Green Revolution, whereas bringing more land under cultivation played a relatively minor role. According to the Food and Agriculture Organisation of the United Nations, (FAO), this sharp 30 year spike in agricultural productivity can be broken down to reveal that 78% of the increase was due to a rise in productivity per unit of land, and 7% can be attributed to greater cropping intensity, with only 15% being a result of the development of previously unused land into farmland.

The Recent Commodity Boom

Commodities have been quite the focus in recent times, with prices rising consistently since 2000, finally peaking at record levels in 2008. Many argue that this is simply part of a long-term cycle in agricultural commodity prices, noting that the same effect was felt during the oil crisis of the 1970’s. During that time, the price of oil rose by 200%, which in-turn drove food prices as the price of oil is a significant factor in the overall cost of agricultural inputs such as fuel and fertilisers.

In the long-term though, when adjusted for inflation food prices have been in decline since the 1950’s. In fact, between 1950 and 2000, food prices in real terms fell by about 50 per cent at the same time the global population increased from 2.5 billion to 6.1 billion.

Whilst on the face of it this does seem to go against the basic economics of supply and demand, when further investigation is made things start to make more sense. Whilst it is true that demand has literally exploded – and is now being compounded through the use of ‘food land’ for the production of non-food crops for biofuels – at the same time, due to the technologies introduced by the Green Revolution, agricultural productivity has tripled, increasing at a faster pace and allowing supply to outpace demand.

This happy situation continued until around the mid 1980’s, where grain production per capita peaked at around 380 kg per person, having risen from around 280 kg per person in the early 1960’s. It is also worth noting that the majority of increased production was ultimately used for livestock feed to sate the growing demand for meat from an increasingly wealthy population. Before that the same thing happened during the great depression of the 1930’s.

The question remains for investors interested in agriculture investments, farmers and the general population, were the recent spikes in agricultural commodity prices part of a long-term pricing cycle, or was this in fact the beginning of a new type of cycle? Well, there are a number of factors to consider; firstly, the recent prices rises were by far the most extreme of recent times. Lasting over a period of 5 years, this happened to be the longest and harshest upward trend in agricultural commodity prices on record, even more so than the price spikes witnessed during the First and Second World Wars.

Also of interest is the fact that the price rises experienced in the 12 months leading up to the 2008 peaks were entirely unprecedented in their scale alone. For example, the price of the three main grain commodities rose by such ridiculously high levels that they had never before been witnessed. The prices of maize rose by 75%, wheat by 121%, and rice by 215%, all in the 12 months prior their peak in 2008.

The reality is that during the 1970’s correction in prices was achieved through increasing yield through the introduction of new technologies (the Green Revolution), allowing productivity to triple, supplies to increase and prices to ease. Again, in the 1930’s, there was ample unused land to develop, leading to the cultivation of 10’s of millions of fresh farmland, again increasing supply and easing prices. In current circumstances yield increases are smaller than population increases for the first time since the 1970’s i.e. increasing productivity that way is no longer viable, and at the same time there is very little unused land left to work with.

This perhaps indicates that higher food prices are here to stay, at least until new technologies are developed to increase productivity. This leap in technological advancement requires investment capital which in turn requires higher farm gate revenues (commodity prices) to fund, therefore it is likely that food prices will remain higher now in order to fund the change in technology required to increase production capacity and yield. The issue then becomes more one of sustainability, rather than pricing, with more concern perhaps due to precisely how we feed ourselves, and the 1 billion people already undernourished on this planet.

So, back to the most recent commodity price explosion; is the fact that prices have risen so dramatically in the most recent spike alone enough to suggest that this is in fact the beginning of a new trend or cycle in agriculture, or is it simply part of an on-going cycle that sees real assets undergo severe re-pricing every 40 or so years?

Many market pundits have pointed out that the level of pure speculation from financial traders was at least in part responsible for the 2008 peak. Indeed it is true that trading volumes increased in the run up to 2008, as interest in Maize more than doubling between early 2005 and February 2008. Looking more closely at trading volumes also tells us that whilst volume increased on the whole by 85%, non-commercial traders (speculators) doubled their share of positive or ‘long’ positions in opening interest. Trading volumes for wheat also increased by well over 100%, as did positive speculator bets.

So it is true that commercial trading of agricultural commodities boomed in the run up to 2008, it is essential to note however that this did not simply occur by chance, the reason more people were trading more commodities, can be attributed to the fact that the fundamentals driving commodity prices displayed a screaming buy signal.

By far the most reliable indicator of global demand and supply in agricultural commodities are records of global grain stores. These figures are the biggest driving force in short term agricultural commodity prices. When grain stores fall then demand outweighs supply, and grain stores rise, the opposite is true. When any commodity is in high demand and short supply, the resulting bidding war drives prices higher, especially when it is an essential commodity one cannot do without such as food.

In 2008, global grain stores bottomed hitting historic lows, and when commodity prices were at their highest, average global grain stocks fell to equate to just 18.7% of annual consumption, equivalent to only 68 days’ worth of global supply, well below the long-term average. In other words, if global production were to be significantly interrupted for two months, for example in the case of a severe drought or conflict, the whole world risked running out of food completely.

Such low global stock alerted speculators to the fact that the supply/ demand relationship had tightened, however many seemed to miss the fact that agriculture is inherently cyclical, and high prices lead to investment in production in an effort to produce more whilst prices remain high which in turn leads to an increase in production and stocks and prices falling off as the supply / demand relationship widens again and those making bets on continued high prices suffered extreme losses as an influx of product hit the market, causing prices to fall rapidly. Welcome to commodity price cycles people!

David Garner is Partner at DGC Asset Management, an alternative investments boutique specialising in property transactions in the agriculture and renewable energy sectors.

As stock markets and bond markets continue to display the sort of volatility that causes Investors to break out into a cold sweat, many are starting to investigate real-asset alternatives to traditional financial assets in an effort to identify opportunities to capture growth and income that is not wholly reliant on the performance of financial markets or the general economy.

There is certainly an increasing appetite for real-asset alternative investments, from fine wine and art, through to land and collectibles, yet a lack of credible performance data and regulation leave many at a loss as to where might be a suitable home for their hard-earned savings in the alternative investment space.

Whilst assets like fine wine and art rely almost entirely on the wealthy as an end market, growing economies in developing nations are creating a super-size middle class which is consuming more resources and consumables such as food, fuel, cars and energy at an astonishing rate, creating a huge spike in demand that shows no sign of abating, creating investable opportunities for savvy Investors able to identify those areas where demand is strong and fundamental limits in the supply chain create short, mid and,long-term value growth for those in control of such assets.

Here are a few examples of real-asset alternative investments that have displayed some extremely desirable characteristics such as capital preservation and a hedge against inflation throughout the last four years of economic turmoil.

Renewable Energy Investments

As populations continue to expand, natural energy resources continue to diminish, international legislation combined with government incentives create profitable opportunities for those in control of energy-producing assets that do not depend on the input of natural resources and therefore generate energy – which can be sold at a profit – during any economic climate.

In the UK, government backed feed in tariffs (FiT) creates opportunity as energy companies must purchase any electricity you generate and feed into the grid. So those in control of solar panels, wind turbines and other energy-producing assets capture market-beating income of between 10% and 20% per annum for up to 25 years. No income-generating financial assets share dividends or bonds can do that.

Forestry Investments

Timber, when considered as an alternative investment asset class is quite unique, not only does the price of timber rise over time – usually at or above the rate of inflation, at the same time trees continue to grow into larger assets with more timer to sell per tree. This combination of biological growth and price growth creates a compound return for the long-term Investors seeking to grow their wealth outside of traditional financial assets.

Forestry investments have outperformed the majority of other asset classes over a range of timeframes, with the best value to be found in emerging markets where demand for timber from growing populations and expanding economies is greatest. It is not uncommon for forestry investment to deliver returns ranging from 10% to 20% IRR over extended timelines dependent upon the location and structure of an individual investment.

Since around 2008, the UK market has come awash with direct forestry investments aimed at the retail Investor, usually based on the lease or sub-lease of a small plot within a larger, managed plantation. In most cases these products have promoted completely unrealistic returns, with some even suggesting that £20,000 could turn into over £1 million in 20 years or so. This real-estate based model also exposes the Investor to a substantial counterparty risk, being entirely reliant on the success of the Vendor for the lifetime of their investment in order to realise any returns and not simply be left with a worthless lease and no realistic access to their plot or trees.

That said, there are a few forestry investment opportunities worth considering, and investor are best advising to seek the assistance of an independent third party with experience of assessing timber investments in order to avoid undue counterparty, asset, location and sector-specific risks that can be associated with this interesting asset class.

Agriculture – Investing in land

Agricultural land is the cornerstone of the human race, it provides the food we eat, the feed used to raise our livestock, and also plays an increasingly large role in providing the fuels we use to power our transport requirements.

The global stock of land suitable for agricultural production is actually falling quite rapidly when considered on an acre per capita basis, falling from 0.42 hectare per person in the sixties, to less than half that amount today. At the same time, not only are there more mouths to feed but each person on the planet is consuming more food as population in emerging economies become richer and demand more calorific, protein based diets which require substantially more resources to produce in terms of grain, water and also energy.

Those Investors in control of productive agricultural land are likely to retain possession of the most valuable resources on our planet, and at the current rate of global expansion, those assets are likely to become ever-more valuable over time, and the income derived from them is also likely to increases as competition for food resources at the global level continues to increases, with those prepared to pay more taking the lion’s share of crops.

In the UK alone, farmland has risen in value by some 10% per year for over ten years, and land close to the food supply chain in Asia, Latin America and Africa even more so.

In summary, the investing climate in 2012 is likely to remain fraught with volatility, and alternative investments will continue to grow in popularity as Investors seek superior returns and a safe haven from potential losses.

David Garner is Partner at DGC Asset Management, an alternative investments boutique specialising in property transactions in the agriculture and renewable energy sectors.

Here we list some of the best investment ideas and tackle the challenge of finding the best safe investments for 2012. What might appear to be one of the best investment ideas to the uninformed could turn out to be one of the worst.

Looking at the big picture for investment ideas in 2012, moderation in asset allocation and a balanced investment portfolio will be the most basic key to success. There are 4 asset classes, and average investors need to spread their money across at least the first three to keep their overall portfolio risk moderate. The 4 categories in asset allocation are: safe investments, bonds, stocks and alternative investments like gold and real estate (optional). Asset allocation can be simplified, because there are mutual funds available to average investors that represent each of the 4 asset classes. Now let’s get more specific about the best investment ideas for 2012 starting with safe investments.

Safe investments earn interest and do not fluctuate in price. You will need to look outside of mutual funds in 2012 to find the best safe investments because record low interest rates have taken yields on money market securities (and hence money market funds) down to just about zero. One of the best investment ideas if you have an account with a discount broker or major mutual fund company is to shop for one-year CDs paying higher rates if you can’t get competitive rates from your local bank. Do not tie your money up for longer periods just to earn a little more interest. One of these days interest rates will go back up and you will be locked in at a lower rate and face penalty charges if you cash in early.

Finding the best safe investments will be truly challenging in 2012, but here are some more investment ideas. If you are in a retirement plan like a 401k that has a fixed or stable account option do not overlook it. You can often get a much higher interest rate there (maybe 4% to 5%) than anywhere else outside of your retirement plan. If you own an older retirement annuity or universal life insurance policy, it might have a fixed account you can add money to that is guaranteed to never pay less than 3% or 4%. Remember, truly safe investments like U.S. Treasury bills and bank money market and savings accounts are paying WAY LESS than 1%!

Over the past 30 years bonds and bond funds have become a favorite with investors because they have been consistent performers and returned on average about 10% per year… basically about equal to what stocks have returned, but with considerably less risk. Many investors have fallen in love with their bonds funds and consider them to be among the world’s best safe investments. Bond funds are NOT safe investments. They have performed well since 1981 (when interest rates and inflation were at record highs) for one primary reason. Both inflation and interest rates have been falling for 30 years, which has sent bond prices higher. Loading up on bond funds now is NOT one of the best investment ideas for 2012. In fact, it is one of the worst investment ideas.

When interest rates and/or inflation turn around and head upward bond funds, especially those that hold long-term bond issues, will be losers. That’s how bonds work. One of the very best investment ideas for 2012 is to sell your long-term bond funds if you own any, and switch to funds holding bonds with average maturities of about five years. These are called intermediate-term bond funds; and average investors should have some money invested here as part of their asset allocation strategy to add balance to their investment portfolio. These are not truly safe investments, but they are much safer than long-term funds.

My best investment ideas in the stock department focus on stock funds. Do not go heavily into the more aggressive funds that invest primarily in growth and/or small company stocks. These pay little if anything in dividend income and tend to be more risky and volatile than the average stock fund. Go with funds that invest in high quality large-company stocks with excellent dividend paying histories. Look for funds that are paying 2% or more in dividends. One of the best investment ideas for 2012 and beyond: invest in no-load funds with low yearly expenses. No-load means no sales charges, and low expenses mean higher net returns to the investor.

Alternative investments include the likes of real estate, gold and other precious metals, natural resources, commodities, foreign investments and so on. One of the best investment ideas for managing a truly balanced investment portfolio is to include this fourth asset class as well. The simplest way for the average investor to add these alternatives to their portfolio is with mutual funds that specialize in these areas or sectors. My best investment ideas here: don’t go heavily into any one area, and don’t chase after a sector (like gold) just because it’s hot. Real estate and natural resources funds would be my picks as two of the best investment ideas in the alternative investments asset class.

Moderation and diversification across the asset classes will be the key to asset allocation in 2012. I have also listed some specific best investment ideas for keeping the average investor in the game and out of serious trouble should the investment scene turn ugly. Above all else memorize this: long-term bond funds are not among the best safe investments for 2012. They are not safe investments, period.

Author James Leitz teaches investment basics, stocks, bonds, mutual funds and how to invest in his investing guide for beginners called INVEST INFORMED. Put Jim’s 40 years of investing experience to work for you and get up to speed at http://www.investinformed.com. Learn how to invest.

As existing populations in developing economies become richer, they shift towards a higher protein, more resource intensive diet, and millions of new meat eaters come to the table annually. This dietary shift is driven primarily by rising household incomes. On average annual incomes are forecast to rise by just under 300%from US$ 5,300 to US$ 16,000 by 2050 (Alexandratos, N. World food and agriculture: outlook for the medium and longer term).

The recent decades of unparalleled global economic expansion, most pronounced in developing and emerging economies, has resulted in the proliferation of a new middle class that has purchasing power beyond their basic needs. In fact, per capita meat consumption in developing countries has doubled since the early 1980s.

Whilst livestock production has historically been supported by grazing and crop/food waste, an increasing demand for meat has led the global livestock industry to become increasingly reliant on grain as a primary livestock feed. According to the United States Department of Agriculture (USDA), in modern intensive livestock farming where the majority of feed is grain based, 7kg of grain are required to produce one kilogramme of beef (Fortune Magazine, 2009, As world population expands, the demand for arable land should soar. At least that’s what George Soros, Lord Rothschild, and other investors believe).

On a global average basis, given that part of the production is based on other sources of feed, such as grazing land and organic waste, 3 kg of grain is required to produce 1 kg of meat(FAO, 2006, Livestock’s long shadow).

As meat production now depends on grain as a key input, any increase in demand for meat results in an acceleration of demand for arable and grazing land area. At least 35-40% of all cereal produced in 2008 was used as feed for livestock(FAO, 2006, Livestock’s long shadow). This leaves an estimated 43% of cereal production available for human consumption after losses from harvest, post-harvest and distribution are taken into account.

In percentage terms, the effect of increased income on diets is greatest among lower and middle-income populations which currently consume the lowest percentage of animal products (Devine. R., 2003, La consommation des produits carnés, INRA).

This indicates great potential for increased meat demand on a global basis given that low-income countries which account for 5.1 billion of the world’s population consume less than half as much meat (as a percentage of dietary energy intake) as high-income countries which account for only 1.3 billion of the world’s population (FAO, 2008, The state of food insecurity in the world 2008).

According to the UN FAO, consumption of animal products per capita in industrialised nations will increase modestly from 825 kcals per person per day today, to just fewer than 900 kcals per person per day by 2050. Yet in East Asia meat consumption is expected to rise from around 400 Kcals per person per day to around 625 Kcals per person per day, an increase of over 56%. Meat consumption in South Asia meanwhile is expected to double from 200 Kcals to 400Kcals(Food and Agriculture Organisation of the United Nations, 2006).

In summary, this shift towards a protein-based diet will continue to drive farmland investment returns as values continue to increase in the face of exponential growth in demand for soft-commodities.

David Garner is Partner at DGC Asset Management, an alternative investments boutique specialising in property transactions in the agriculture and renewable energy sectors. For more information, download FREE investment guides at the DGC Asset Management website.

The primary measure of farmland investment performance in the United States is the National Council of Real Estate Investment Fiduciaries (NCREIF) Farmland Returns Index. The index provides investors with a measure of the investment performance of a large pool of individual agricultural properties acquired in the private market for investment purposes. According to the index, US farmland returned 8.6% in 2010, and 5.85% to quarter 3 in 2011.

Regional U.S. farmland growth figures vary from state to state. A new report by the Federal Reserve Bank of Kansas City showed a 12.6% increase in mountain states farmland values over 2011.

The Minneapolis Federal Reserve Bank District reported farmland values as of second quarter 2011 up 17% from the same period a year ago, while the Kansas City District reports farmland prices up 20%.

Nebraska has seen one of the largest increases, with non-irrigated land up 30%. Oklahoma ranchland, suffering from a prolonged drought, saw values up just 6.4%, with what increase there was driven by oil and gas exploration.

There has been some concern amongst the agricultural community in the United States that land values have spiralled out of control, with demand for assets fuelled almost entirely by Investors seeking to diversify out of the stock market and into tangible assets. Don McCabe, an accredited farm manager with Soy Capital Ag Services said recently at an investment forum that, about 60% of all farmland is being purchased by active operators, with 15% purchased by nonlocal investors, 13% by local area investors, 7% by institutions and investment groups and 5% by other entities.

In Canada, Farm Credit Canada (FCC) monitors the value of a basket of 245 benchmark farm properties every six months. On average, Canadian farmland increased 7.4% in the first six months of 2011, and 9.5% for the year ending June 2011. Saskatchewan farmland led the nation in farmland price increases, up 11.6% in the six months ending in June, and up 14.3% year on year.

New York-based TIAA-CREF, the largest U.S. pension manager for teachers and academic researchers with $469 billion of assets said in October 2011 that farmland investments may return 8% to 12% per year as global food demand increases. The company has $2.5 billion in farmland investment assets and owns about 600,000 hectares.

Investors considering farmland investment should consult with an experienced Advisor in order to plan the most relevant and effective farmland investment strategy, identify suitable opportunities and identify and mitigate risk.

David Garner is Partner at DGC Asset Management, an alternative investments boutique specialising in property transactions in the agriculture and renewable energy sectors.

Around 225,000 people are added to the global population every single day, all of whom require food and fuel. At the same time, incomes in developing economies are rising, causing a shift toward a more expensive and more resource intensive westernised diet based on meat. Considering that 1kg of meat requires the input of 7kg of grain as animal feed, this combination of more people and higher consumption per capita adds tremendous strain to already stretched agricultural productivity.

The amount of farmland on the planet is actually falling. Urbanisation, soil degradation, water scarcity and climate change all converge to reduce the stock of land suitable for growing the essential crops we need.

In light of this on-going and increasing disparity between supplies of farmland and demand for agricultural commodities, investors are turning to farmland in order to capture financial gains as food prices rise and productive land becomes intrinsically more valuable.

There are a range of farmland investment strategies to consider, from simple acquisition of land and leasing to farmer, through to sharing crop revenues in a joint venture under a contract framing agreement. But certainly the most profitable agriculture investment strategy is greenfield development; the acquisition of land with agricultural potential and converting into productive agricultural assets through the establishment of infrastructure such as irrigation, storage facilities and road, as well as amending the soil profile to ensure maximum productivity.

Greenfield farmland developments add substantial capital value to previously unused land, as well as positively impacting the current black hole in agricultural productivity that leave over 1 billion people hungry around the world each year. Investors also benefit from on-going income from crop revenues as newly converted land produce an annual yield from the production of crops.

The majority of future growth is widely expected to come from developing regions including Asia, Africa and Latin America, where economic growth outpaces that of the west by a huge margin. It is these key growth regions that the appetite for agricultural commodities will grow the most. In fact, in Germany the population is expected to get smaller in the next 40 years, whilst in China the population is expected to expand by some 30% in the same period.

It is fair to say then that agriculture investments based on the development of suitable land, in close proximity to key growth regions in Asia, Africa and Latin America offer investors the best opportunity to capture not only short term appreciation through development, but also long-term growth and income driven by population growth and rising incomes.

David Garner is Partner at boutique alternative investments boutique DGC Asset Management Limited.

The investment performance of the agriculture sector can be monitored via a number of devices and measures that track the performance of traditional investment assets such as quoted equities, as well as a range of measures that reflect price movements in alternative investment assets within the agriculture space such as farmland.

In reality, the agriculture sector as a whole relies on a combination of demand for its products, weighed against agricultural productivity. When demand for food, livestock feed and biofuels is high then soft-commodity prices rise, as is also the case when poor productivity creates the same widening of the gap between supply and demand. On the other hand, if demand falls back, or bumper harvests create an oversupply of produce, prices fall.

If one is able to gain an understanding of current productivity and demand dynamics, then one is best able to predict the true performance of the sector as a whole.

The performance of agricultural equities alone – as measured by agricultural indices – does not truly reflect the state of fundamentals that support the sector. In many cases, individual issues that affect specific companies can either boost or lessen demand for the stock resulting in movement in the stock price regardless of the performance of the sector as a whole.

Indeed, many consider that the most efficient method of capturing financial gains resultant of the boom in demand for commodities from a population that is growing exponentially is to acquire farmland as an investment. The value of farmland is driven at the most fundamental level by the net revenue earning capability of the individual asset in question. As an example; a one hectare lot capable of generating a net annual income after costs of £1,000, will be worth more to a Farmer than a similar plot capable of earning only £500.

Farmland values are recorded by different indices in different regions. In the U.S. the National Council of Real Estate Investment Fiduciaries (NCREIF) records the quarterly investment performance of farmland. In the UK the Land Registry offers the most accurate picture, although anecdotal evidence from estate agents such as Knight Frank offer some insight, although on a very broad, national basis.

Agricultural equity indices include Standard and Poors GSCI Agriculture Index; S-Network ITG Agriculture Index; Dow Jones-UBS Commodity Index and Société Générale Index Global Agriculture, all of which provide a different viewpoint as they measure a different set of equities or commodities and use different weightings.

Overall, agriculture investments can best be assessed individually, and conclusions drawn as to the potential for each project as a standalone entity, be it an equity investments or acquisition of tangible assets. Investing in any business should not be simply because it operates in a particular sector, farmland should not just be bought simply for its agricultural status, and alternative investments are not going to be profitable just because they are alternative.

DGC Asset Management are an alternative investment consultancy providing Investors with research, due diligence and select opportunities to participate in the acquisition and development of productive, income producing agricultural property and renewable energy assets.