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 Investment climate 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.