sustainable investing Archives

Environmental, Social, and Governance Investing

Written June 28, 2022 by Ailie Carlene Elmore

What is ESG Investing?

Earlier this year we introduced ESG investing to you as one of our 2022 investing themes to watch. Since then, it has continued to grow in interest not only for institutional investors but consumers as well. But what exactly is this phrase “ESG” and what does it mean as an investor? ESG stands for Environmental, Social, and Governance with the investment goal to put money to work to make the world a better place. An investment strategy geared towards ESG investing means investing in companies or funds that score well within the ESG standards set by independent research companies or groups. Investments are evaluated based on what kind of impact they have on the environment – positive or negative, how the company is improving society through its social impact, and in what ways the company’s leadership is paving the way for positive transformation organizationally through transparent and affirmative business practices. Overall, ESG investing aims to create an impact that is positive not only for the surrounding community and environment but for investor returns as well.

Rise and Growth of ESG Investing

ESG investing has grown in popularity within the last 5-10 years as more investors and shareholders are demanding companies be held accountable for their business activities and impacts on the surrounding community. Society as a whole is becoming increasingly concerned with social change and environmental impact which has trickled down to the investing world. While investment in positive change has been occurring long before the term ESG was coined, the 2015 Paris Agreement that pledged to limit global temperature increases caused societal and investor interest in the investment strategy to grow in popularity and as a method of capital allocation. The concept of ESG investing is now a mainstream theme and Morgan Stanley found that 79% of individual investors are interested in sustainable investing with millennials and younger investors showing the most interest. Growth in the sector has exploded in the past 5 years. Currently, it is estimated that there is $2.74 trillion invested in the ESG thematic globally and $357 billion invested in the U.S. This burst in interest was driven by increasing environmental concerns, the COVID-19 pandemic, and other societal issues.

Source: SustainFi

Regulation and Reporting for ESG Investing

ESG investing relies on independent research firms to provide scoring models and rating standards to evaluate companies on their ESG initiatives. Each research firm has different reporting standards but the pillars of Environmental, Social, and Governance remain. Some of the most popular reporting agencies are Bloomberg, S&P Dow Jones Indices, and MSCI, and typically their scoring follows a 100-point scale with the higher the score meaning the higher the rating. Companies in the U.S. are not presently required to report their ESG metrics. However, pressure from shareholders and other stakeholders has prompted many companies to start reporting their sustainability data.

A variety of reporting frameworks exist such as the Sustainability Accounting Standards Board (SASB) and the Global Reporting Initiative (GRI) but there is no standardized reporting regulation globally. This discontinuity has caused speculation about reporting standards and an MIT study found that there is only a 60% correlation in ratings among different ESG reporting regimes. A conflict also exists on how much weight is placed on the individual factors within the diverse ESG standards. For example, Tesla and Exxon Mobil both received an “average” rating by MSCI even though some may argue that Tesla’s business model is much more sustainable while Exxon is an oil and gas company whose carbon based products are a major contributor to climate change. Exxon has much higher ratings for worker treatment and safety than Tesla does which raises its ESG ratings. As an individual investor, you have to decide which letter in the ESG acronym is the most important to you.

Investing in ESG

As in any investment strategy, you need to ask yourself what your investment goals and purposes are and consider your risk and return profile. The same goes for choosing an ESG investing strategy. Think about which issues within the ESG framework you are the most concerned with. For many investors, current economic concerns may drive their portfolio allocation decisions. Rising energy costs and fossil fuel concerns have many people looking to alternative energy sources to invest in. Solar, wind, and geothermal energy have all caught the attention of investors and consumers as oil and natural gas prices have been on the rise throughout much of 2022, making the switch to alternative energy more competitive across various applications. An alternative energy ETF that has been gaining investor attention is the iShares Global Clean Energy ETF (TICKER: ICLN). With $4.8 billion assets under management, it is one of the largest alternative energy ETFs with holdings in multiple solar, wind, and energy technology companies. It has a AAA rating in ESG standards from MSCI which is the highest rating given. Another ESG ETF we have been watching is ALPS Advisors’ Clean Energy ETF (TICKER: ACES) that has $658 of assets under management. ACES has a more diverse allocation of companies involved in solar, wind, energy management and storage, bioenergy, hydrogen/geothermal, electric vehicles, and fuel cell technology. Another fund with a diverse ESG themed allocation is Northern Trust Corporation’s ESG index fund (TICKER: ESG). It has diverse holdings in major large-cap stocks investing in technology, health care, energy, and industrials. Microsoft is its largest single company holding which has a AAA rating by MSCI for ESG standards.

Source: Getty Images

Future of ESG

Investors and markets of today are much more varied and dynamic than they were 50 years ago. Investors today are generally more passionate about making a positive impact on their communities and allocating capital with purpose to ensure its being put to work for the greater good of society, the planet, and future generations. Broadridge Financial Solutions predicts that investments in ESG will reach $30 trillion by 2030. Not only are investors demanding more sustainable investment options, but they also want better corporate transparency and the application of uniformed standards to hold companies accountable. It is expected that the U.S. Securities and Exchange Commission will issue more rigorous ESG reporting guidance and regulations for corporate disclosures on carbon emissions and environmental sustainability. While investors are interested in driving change, they also want to maintain strong portfolio returns. This doesn’t appear to have been an issue for ESG Themed Funds historically. Morningstar research found that ESG funds produce a good return on equity with lower volatility when compared to traditional funds. Environmental, Social, and Governance investing is here to stay and with the help of technology, data management, and uniform reporting, today’s investors will be more empowered to invest with purpose and include ESG holdings in their portfolios that are aligned with their investment preferences. For more information of ESG themed investments, please visit us at https://servantfinancial.com.

Through the Looking Glass – Investment Themes to Watch in 2022

Written January 25, 2022 by Ailie Carlene Elmore

The world has been riding the COVID-19 rollercoaster for the past two years. Similar to Alice’s adventures in Through the Looking Glass, the twists and turns of the pandemic have been reflected in our everyday life and the investment world. Financial markets have experienced extreme highs and lows as the market digested economic data and expectations about COVID-19 cases and incoming variants. Even the map of S&P 500 levels mimics a roller coaster you might see at your favorite theme park. Despite the economic and social volatility over the past two years, the S&P 500 returned more than 26% in 2021.

Graph of S&P 500 levels January 2020 – December 2021

So where will Alice go next in the looking glass? Specifically, what should investors be reflecting on as we look towards 2022? With this in mind, we have identified a few opportunities as well as some things to watch in the investing world in the upcoming year. More details will be provided on these topics in the upcoming months however investors should be aware of these opportunities and market risks as we start the year.

Inflation

One of the greatest market concerns early on in 2022 is rising inflation levels. From food in the grocery stores to gas at the station, the price of everything is going up. The U.S. Labor Department recently reported that consumer prices rose 7% in December 2021 from the price level in December 2020. This comes after November 2021 consumer prices rose 6.8%. A Wall Street Journal survey showed that respondents believe inflation levels will come down gradually in 2022 as a Federal Reserve interest rate hike is expected in early 2022 in response to inflation well above its 2% target and a low unemployment rate of 3.9%. Survey respondents also are projecting economic growth to slow in 2022 to a 3.3% increase in GDP which is significantly lower than their October expectations of 4.2%. As a result of these economic drivers, investors are flocking to real assets such as farmland, commodities, and precious metals. Commodities, including energy, and precious metals are the top-performing sectors so far in 2022. Nationally, farmland experienced a 7% increase in values in 2021, and agricultural commodities and farmland are projected to continue rising in 2022. If you are interested in investing in farmland coupled with tax benefits, learn more on Promised Land’s website.

Wall Street Journal Survey Report

The Next Gold Rush

The rise in inflation expectations also has some investors seeking protection in physical assets such as Gold. Gold is another asset that has been known to offer investors inflation hedging potential however the volatility in the COVID-19 pandemic caused great volatility in the gold market in 2022. Based on our Q4 data, gold was down close to 4% year to date in 2021 but was up 5% in the fourth quarter of 2022, demonstrating increased interest in the asset class with rising inflation concerns. Some investors think gold will start to shine in 2022 as the market digests negative real yields in the face of potential runaway inflation numbers. Analysts from Australian Bank, ANZ, expect gold prices to rally in the first half of 2022 but will come back down later in the year after the expected interest rate hike from the Federal Reserve. Meanwhile, another historical catalyst for gold, geopolitical risks, are on the rise in Ukraine and Russia, Taiwan and China, and domestically due to COVID-19 policies. While the jury is still out on whether the next gold rush will emerge, it is an investment theme we are keeping our eye on going into 2022.

Image from the Gold Rush of 1849. Will we see history repeating itself in 2022?

Cryptocurrency

While the economic results of the COVID-19 pandemic have some investors looking backward to seek inflation protection, others are wondering if a cryptocurrency investment has a portfolio role in the investing looking glass. Crypto has had a varied history and is known to be one of the most volatile assets. However, its use as an alternative store of value and currency (“digital gold”) has been attractive for some investors seeking shelter from potential Federal Reserve money printing and other monetary policies supportive of risk assets. The cryptocurrency market has started 2022 on poor footing with Bitcoin falling more than 7% on January 21^st. This comes after global concerns from emerging regulations on cryptocurrencies in Russia, one of the largest crypto-mining markets. Will this rocky start send Bitcoin tumbling down into a digital mineshaft? Goldman Sachs remains optimistic about Bitcoin’s potential, citing that it thinks the price could double in the next five years, stealing some of gold’s luster in the process. The crypto story will continue to unfold in 2022 and we will be keeping watch with “laser eyes.”

Environmental, Social, and Governance (ESG) Investing

Every day, more and more investors want their investments to not only grow in profitability but also spark positive change in the world around them. The demand for environmental, social, and governance (ESG) investing grew substantially in 2020 with a record 140% increase in investment funds going towards ESG investments. In 2021, investor demand grew further with companies across the planet trying to meet investor preferences through sustainable business practices and policy actions to reduce their carbon footprint. Northern Trust Corporation’s ESG index fund (Ticker: ESG) which invests in large-cap companies promoting sustainability and social governance is up more than 14% from January 2021 to January 2022, with its outlook looking strong. Its $186 million assets under management include a diverse mix of industries such as technology, health care, and renewable energy. As young millennial investors enter the stock market, many believe impact investing will be at the forefront of their minds and their pocketbooks. ESG investing is paving the way for new roads in the market such as carbon investing, green bonds, and clean energy development. We plan to discuss this topic further in the coming months and provide opportunities to put your dollars to work for a more sustainable planet.

Grow your wallet and your planet with ESG Investing

The Looking Glass

“It’s a great huge game of chess that’s being played – all over the world- if this is the world at all you know” – Lewis Carroll in Through the Looking Glass. These words of Carroll from more than 150 years ago still hold in life, especially in the geopolitical and investing realms. From inflation and interest rate concerns to safe-haven capital flows to gold and ethically directed demand for ESG investments, investors must actively survey the chessboard and potentially modify the strategy to win the game. 2022 is sure to challenge us tactically with blockades, decoying, and double attacks. Servant Financial will use a stable, yet flexible looking glass by investing your capital with integrity, compassion, and experience. Follow us as we reflect on these and other topics in the coming year.

Organic Agriculture: Fad or Durable Trend?

Written December 28, 2021March 27, 2024 by Ailie Carlene Elmore

Background on Organic Agriculture

Walking down the aisle of the grocery store, a shopper can find a variety of different food labels attempting to win their attention such as “No Added Sugars”, “Gluten-Free”, or “No Artificial Dyes or Flavors.” More recently, labels such as the one below have been popping up in grocery stores across the U.S.

USDA Organic Seal

It used to be that organic products were only found in select stores that specialized in organic or sustainable food products, but more and more organic products are going mainstream and can be found in big-name grocery stores such as Walmart, Costco, and Target. In fact, Walmart, is the #1 seller of organic products offering more than 400 different organic products. That figure surprises some people that expect traditional specialty stores such as Whole Foods or Trader Joes to dominate the space, but the market share of Walmart outpaces both of these popular organic store chains.

But what actually constitutes a product as organic? While this definition could be different based on who you ask, the Environmental Protection Agency defines “organically grown” as food that is grown and processed without synthetic fertilizers or pesticides. However, natural pesticides that are derived from animals, plants, bacteria, or minerals are allowed. Organic production has been taking place in the United States since the 1940s but it started to gain steam in the 1970s as consumers demanded more environmental awareness and became increasingly concerned about how food was grown. In 1990, Congress passed the Organic Foods Production Act to develop national standards around organic production in both livestock and crop production. The National Organic Program which is a marketing program managed by the USDA aims to create and monitor uniform standards around organically produced products to aid consumers in their decision-making.

Drivers for Organic Products

Organic sales currently account for more than 4% of total U.S. Food Sales and that number is projected to continue rising in the future. Total sales of organic products grew 31% from 2016 to 2019 domestically and are projected to grow at a compound annual growth rate of 10% through 2025. The dominant organic product in the U.S. market is fruits and vegetables with large growth in 2020 in the pantry stocking and meat, poultry, and fish sectors.

Organic sales are on the uptick with sales reaching $56 billion in 2020.

While there are a variety of factors driving organic food demand such as environmental or health concerns, the largest reason is consumer preference and affordability. Historically, organic products cost anywhere from 10-50% more than conventional products. When it comes to one of the U.S. largest agricultural exports, corn, the price of organic corn is more than double its conventional counterpart. Organic production is more costly for producers. In addition to higher seed and land costs, producers face a costly 3-year transition period in the land to become certified organic. During this time, the land must be “cleansed” of any conventional pesticides or fertilizer. Once a farm is deemed USDA certified organic, the returns are considerably higher than conventional methods for corn and soybeans in particular. The table below from the USDA presents data that shows that although organic production costs are higher than conventional costs, the higher prices received for organic crops more than offsets the higher production costs for corn and soybeans. The same can also be said for organic meats and produce however there is less widely available information about those markets.

While the costs of organic production are higher, this is offset by higher prices received.

After investigating the returns to organic production, you might ask, why aren’t more farmers producing organic products? The biggest hurdle for farmers is the three year transition period and capital expenditures needed to become organic. The three-year transition can cause a financial hit to producers that can be difficult to recover from. Another difficulty for organic producers is the lack of infrastructure in the organic industry. Unlike, conventional products like corn and soybeans, there is not a centralized market such as an exchange for organic products to be bought and sold. Organic products often require more specialized handling and storage and there are not as many facilities able to handle these needs. While government policy is working to change this, there is much work to be done in this space if the U.S. is to meet its own domestic demand for organic products.

Investment in Organic Agriculture

An investment in organic agriculture could be attractive for investors not only in investment performance but also may fit their preferences to actively support environmental, social, and governance (ESG) standards. Many organic companies share these beliefs and would seek to leverage capital from ESG investors to transform and grow the organic marketplace and infrastructure. Investors looking to capitalize on organic investing have a variety of options. They could invest in the common stock of companies selling organic products such as WhiteWave Food (WWAV) which owns 4.2% of the organic market share with popular brands such as Horizon Organic. In 2017, WhiteWave Food was acquired by Danone, one of the largest multinational food companies.

Another common stock option could be to invest directly in organic grocers such as Sprouts Farmers Market (SFM) which specializes in premium organic foods and performed quite well against large grocery competitors during the COVID-19 pandemic. Sprouts delivers a unique farmers market experience with an open footprint of fresh produce at the heart of the store and welcoming look and community feel. Sprouts offers an assortment of fresh, high quality food that is sought after by its more affluent and educated consumers. Because they are able to capitalize on health and quality conscience consumer base, their profit margin is 4.5% which is strong compared to one of the largest grocery stores in the U.S., Walmart, who has a profit margin of 1.4%. Sprouts’ ESG operating focus has also impressed its stakeholders, particularly its efforts to reduce food waste by 78,000 tons. Sprouts has an equity market cap of $3.2 Billion and trades at a reasonable 11 times trailing twelve month earnings. Sprouts is ramping its growth plans and intends to add 300 – 400 new stores in expansion markets of Texas, Florida, California, and New England.

In last month’s article, we discussed the Promised Land Opportunity Zone Fund which provides investors the opportunity to deploy capital in farmland which has historically provided strong returns with inflation hedging capabilities. The farmland in this fund lies within an opportunity zone, providing tax benefits to investors. The Promised Land Opportunity Zone Fund is looking to deploy capital to organic conversions in opportunity zones as part of its broader opportunity zone investment in farmland. If you are interested in learning more about the Promised Land Opportunity Zone Fund, please contact Ethan Rhee at ethan@servantfinancial.com.

Another option for investment in a private fund that is more of a pure play in the production of organic food, an investor could invest in an organic farmland REIT such as the Vital Farmland REIT LLC (Fund II) managed by Farmland LP. Farmland LP’s has assets under management valued at more than $200 million across its two farmland funds, totaling close to 15,000 acres. Farmland LP earned the highest corporate sustainability rating by HIP Invest Inc. in 2021 for its ESG efforts.

For ETF investors, there are fewer options for direct organic investment however several ETFs are investing in food production and food processing. The First Trust Nasdaq Food & Beverage ETF (FTXG) has $6.4 AUM and also has a AAA rating (best) for ESG impact by Morgan Stanley Capital International. Their primary holdings are in food processors such as Bunge, Tyson, Archer-Daniels-Midland, and General Mills. These companies are all making significant strides towards increasing processing capabilities for organic products.

While organic agriculture has made substantial advances in the past ten years, this emerging agricultural sub-sector is still in need of capital to grow productive capacity and reach its full potential. An investment in organic food production provides for diversity of consumer preferences as well as environmental and sustainable production benefits for American farmers and farming communities. The historical and projected organic sales data and savvy investor capital flows suggest that organic agriculture is a durable trend that is here to stay.

One Up On Main Street – A Farmer’s Daughter’s Guide to Farmland Investing

Written November 29, 2021November 29, 2021 by Ailie Carlene Elmore

Author’s Note

“This past month, I defended my master’s thesis on the Role of Farmland in a Mixed Asset Investment Portfolio. Under the direction of Dr. Bruce Sherrick at the University of Illinois at Urbana-Champaign, I explored how an investment in farmland can interact in an investment portfolio of equities, bonds, and treasuries in addition to how it can hedge against inflation. Using data maintained by Dr. Sherrick and courtesy of the TIAA Center for Farmland Research, I analyzed the returns to farmland from 1970-2020 and some of my results are discussed below in addition to introducing farmland as an asset class to institutional and individual investors.” – Ailie

Background on US Farmland

Farmland is a unique asset class in that it has a limited supply and potentially an unlimited useful life. Only 17.2% of the United States landmass is considered arable. With a growing world population projected to reach 9.7 billion by the year 2050, farmland is well positioned as a production source for a basic human need: food. Not only is the population rising but income levels are also expected to follow suit with world GDP projected to double by 2050. These statistics suggest that demand for food is going to go up and the composition of caloric intake is expected to change. Research shows that protein consumption rises with rising income levels. With a significant portion of farmland acres dedicated to either feeding livestock or producing other protein sources like chickpeas or lentils, farmland owners and operators are uniquely positioned to meet this demand and profit from it. So long as humanity needs food, there will be economic rewards for the cultivators and landowners.

Farm Balance Sheet

If an institutional or individual investor was investing in a company’s common stock or buying a corporate bond, they would typically examine the balance sheet of the company. The same is true for investing in farmland. Farmland has grown in value significantly over the last 50 years with a 55% increase in the last 10 years alone. Farmland (Real Estate in the table below) dominated the asset side of the farm sector’s balance sheet encompassing close to 83% of total assets. Under the recent low-interest-rate environment, farmland’s debt level has also grown but this is still significantly less than the portion of farm assets it supports. The overall low debt to equity ratio of 16.2% demonstrates a very conservative leverage position relative to other real asset sectors and the relative strength of the U.S. Agriculture industry as a whole.

Data maintained by the TIAA Center for Farmland Research based on data from the Economic Research Service, a sector of the USDA

Returns to Farmland

Like any real estate asset, farmland receives returns when held by an investor in two ways: appreciation in value and cash flow generated from rental income. In 2021, the U.S has experienced a rise in both. According to the USDA, farmland prices are up 8% from last year. Record sales prices of farmland have been occurring throughout the U. S.’s key growing regions.

August 2021 USDA Land Values Summary

On the rental income side, most investors would be participating in a straight cash rent system meaning a farmer pays the landowner a fixed amount per year for the use of the land. Recently, the U.S. has experienced growth in cash rent values along with the rise in farmland prices. Fueled by strong commodity prices, healthy farming profits, and appreciating land value, cash rental rates are projected to rise 10% in 2022.

To examine a longer-term horizon of historical returns to farmland, data from the TIAA Center for Farmland Research was utilized from the years 1970-2020. During this period, the average return to all U.S farmland was 9.7% with a standard deviation of 6.4%. This composite return encompasses all 50 states. However, not all regions of the U.S. are suitable for farming or have optimal productivity. An institutional investor also has to consider that that are nine anti-corporate farming states that would make it difficult for them to invest in certain key production states like Iowa.

One way for an investor to maximize their potential returns while gaining operational efficiencies from scale is to invest in a farmland fund that provides broad diversification with farms in several key states. The Promised Land Opportunity Zone Fund (“PLOZ” or “Promised Land”) is one way for investors to capitalize on the durable returns of U.S. farmland while also receiving favorable tax benefits such as a reduced capital gain taxes depending on how long the asset is held. The government defines opportunity zones as urban and rural communities that need significant investment to foster economic revitalization. The current PLOZ portfolio is managed by Farmland Partners in conjunction with Servant Financials’ founder, John Heneghan. Currently Promised Land owns 10 properties of 8,000 acres in North Carolina, South Carolina, Illinois, and Mississippi. These states encompass some of the highest performing states in the U.S.

Using this state composite for Promised Land, the weighted average return of states represented in the fund can be used as a proxy to compare farmland returns with other traditional investments. This is done by weighting the allocation to each of the 5 states by purchase price then finding the average return of these states using the TIAA Center for Farmland Research’s data on cropland return. The return from 1970-2021 across the Promised Land proxy states was 11.1% with a standard deviation of 8.4%. Looking at the more recent term, this farmland proxy had a return of 8.2% with a lower standard deviation of 5.2%.

Note: This analysis uses USDA state-level averages to compare historical returns and does not necessarily represent the returns that an investor would achieve with an allocation to the Promised Land Opportunity Zone Fund.

Relationship of Farmland with Traditional Investments

The proxy returns in the Promised Land Opportunity Zone Fund can be compared with other traditional assets such as corporate bonds, stock indices, REITS (real estate investment trusts), treasuries, and gold. Using a risk-return plot under two different time horizons, the position of farmland as an investment can be compared with other investments. Performance metrics from 1970-2020 were examined to show farmland as a longer-term investment compared to a shorter time horizon of 2000-2020. See the figures below for full details.

Data maintained by the TIAA Center for Farmland Research.

The Promised Land OZ proxy demonstrated the highest risk-adjusted return compared to the other asset classes over both time periods. PLOZ has the optimal position in the upper left-hand quadrant of the graph with a high return and overall lower risk compared to equities, REITS, and gold. Even in the last 20 years, the PLOZ proxy still yielded high, relative returns with lower risk.

The relationship between farmland and other investments can be further compared by examining the correlation of returns in the chart below. A value of 1 means two asset classes are perfectly correlated and would be expected to move up or down in tandem. A negative number suggests the two assets move in the opposite direction over time.

Promised Land’s negative correlation with stocks (S&P 500, Dow Jones, NYSE) gives reason to believe that farmland would provide diversification benefits and offset some of the volatility of these assets with high standard deviations (risk measure). In the more recent past (2000-2020), farmland’s negative relationship with stocks is even stronger with a -.32 correlation with the S&P 500. Note that when the S&P 500 dropped 48.6% in 2008 after the great recession, the Promised Land proxy maintained a positive return of 8.9%.

Relationship of Farmland with Inflation

Recently, investors have been concerned about inflation and how they will affect investment portfolios. The Labor Department recently reported that inflation had hit a 31-year high in October with the consumer price index (CPI) rising to 6.2%. Investors and economists across the globe are wondering if we are witnessing the death of Fed’s “inflation is transitory” narrative. Historically, stock indices have had a negative correlation with inflation and investors are concerned that these inflationary trends are long-term and secular in nature. Farmland on the other hand has historically provided a nice hedge against times of inflationary pressure. Examining the PLOZ proxy returns with CPI trends shows a positive correlation of .71, meaning historically an increase in the CPI will also increase returns to farmland. Recently this trend has held as some Midwest land is up 20% in value along with the higher consumer prices. See the figure below for more details.

Investment Opportunities

With its potential return and diversification benefits along with its track record as an inflationary hedge, farmland is positioned well to have a complimentary role in a traditional 60/40 (equity/bonds) investment portfolio. To optimize on this potential, investors have a few different options to partake in farmland investing. The most obvious option is to buy farmland directly. However, this could be costly and comes with the requirement that the investor find capable management for the parcel. Buying a single parcel of farmland also puts the investor at more risk that comes from regional concerns like weather or farm-level (or idiosyncratic) risks like loss of production due to water or soil nutrient levels.

To alleviate some of the parcel management burden while still participate in farmland’s return and diversification benefits could be to invest in the Promised Land Opportunity Zone Fund. The fund is targeting internal rates of return between 8% and 14%, before consideration of the tax benefits it would provide to OZ investors. PLOZ’s mission is to help investors and agricultural communities achieve mutually beneficial outcomes through profitable, durable investing in farmland and the revitalization of rural American communities. In addition to its core “opportunity zone” impact, Promised Land is evaluating other environmental, social, and governance (ESG) principles, such as farmland preservation, wetland and forestland restoration, organic conversions, and soil health and carbon management practices. Promised Land’s vision is for these agricultural communities to prosper by feeding the world while OZ investors do well by doing good for these communities and the environment. If you are interested in learning more about the Promised Land Opportunity Zone Fund, please contact Ethan Rhee at ethan@servantfinancial.com.

Another option for investors would be to invest in Promised Land’s partner: Farmland Partners Inc. Farmland Partners Inc. (FPI) is a publicly traded company that acquires and manages high quality farmland throughout North America. FPI manages the farmland in the Promised Land Opportunity Zone Fund as well. FPI’s current portfolio consists of 157,000 acres in 16 different states. Currently FPI’s stock is trading for just over $12 per share which is up 50% from this time last year. We believe this is an attractive entry point below the fair value of the farmland that FPI owns. On their third quarter 2021 earnings call, CEO Paul Pittman, commented that the net asset value of the farmland was closer to $14-$15 per share. FPI has also restarted its growth and consolidation strategy. In addition to direct farmland acquisitions, FPI is growing its asset management business with its property management arrangement with Promised Land and its recent acquisition of Murray Wise & Associates.

With the risk of secular inflation on the rise and the inherent portfolio diversification, an investment in farmland is something all investors should be considering. By including an allocation to farmland in your investment portfolio, you’ll have a much more efficient portfolio and be “one up on Main Street” investors enamored with a traditional 60/40 investment portfolio.