Farmland in a Mixed-Asset Portfolio: A Mean-Semivariance Approach

Abstract

Executive Summary. This study uses the downside risk or mean-semivariance (M-S) methodology to evaluate farmland as a component of a mixed-asset portfolio. Results confirm that while a minimal investment in farmland may be warranted, farmland investment does not need to be a substantial part of the core allocations of an optimized mixed-asset portfolio. Although investment in farmland cannot be shown to statistically improve mixed-asset portfolios, which already include allocations to real estate, investment in farmland can be part of the real estate allocation of an optimal mixed-asset portfolio when investors or their advisors have farmland investment expertise. More studies using additional farmland data are required to fully assess direct investment in agricultural land.