One of the challenges of investing, particularly in the current low-interest-rate environment, is finding assets that provide a reasonable income without taking on significant volatility.
By investing in productive land, it aims to provide a higher level of sustainable income over the long term while also having less volatile returns than listed share or property investments.
These investments also help diversify the risks traditionally associated with investing in listed property. For example, during the depths of the Covid-19 crisis last year, the productive horticultural land was unaffected by rental abatements and reduced foot traffic that impacted retail malls and office buildings.
The investments in the fund have broadened over time, gradually adding to the diversity of its sources of income and property exposure around New Zealand.
The Private Land & Property Fund (PLPF) is invested in a variety of horticultural and productive sites across New Zealand:
In March 2021, PLPF added a 50% stake in Waimea West Hops, which owns and operates a 35-hectare established hops farm near Nelson. The farm currently includes 28 canopy hectares of mature aroma hops, with the key varieties being the sought-after Nelson Sauvin and Motueka. Booster’s investment will help Waimea West Hops expand, with an additional 54 hectares of hops expected to be added to the farm over the next few years – including the recently released ‘Nectaron’ variety. This will position them well to capitalise on the rising demand for craft beer, which requires greater aroma hop quantities.
Providing some diversity in the PLPF portfolio is the kiwifruit orchard Booster purchased in 2019. This 20-hectare orchard, situated in Kerikeri, is leased to Seeka at a 7% yield for up to the next 13 years. However, Booster can step in and receive crop revenues directly in just three years if justified by the property’s income levels. This provides an attractive cash income now, with the prospect of additional return on top.
The portfolio also benefits from the stability of having a solid, NZX-listed ‘tenant’ in place.
A staple of the fund’s investments are a range of vineyard properties, totalling over 250 canopy hectares, across Marlborough, Nelson and the Hawkes Bay. The income from these properties comes mainly from long-term leases, supplemented by some revenues from the contracted sale of grapes. Selling grapes directly for part of the portfolio’s income provides the prospect of a higher return on investment by accepting a little more year to year variability.
March was a strong month for world share markets, rising over 4% on average. Economic data continues to improve, while the US was supported by another round of fiscal stimulus totaling US$2 trillion - this time focusing on infrastructure spending including transport, water, and broadband infrastructure.
The returns for diversified portfolios over the past 12 months are now very strong (with a Balanced fund up almost 20%), thanks to the starting point in March 2020 being close to the Covid-19 lows. Pleasingly, looking across the Covid-19 selloff and the recovery since, Booster portfolios have done a good job of delivering a more resilient path of returns than markets in general.
The theme across markets in 2021 so far continues to be one of rising long-term interest rates and inflation expectations, as economies are getting closer being able to stand on their own feet.
This is something Booster had begun to anticipate in our portfolio positioning, having reduced the global fixed interest investments in portfolios in February, anticipating better reinvestment rates in the future, with an allocation to inflation-linked bonds in both New Zealand and the US since mid-2020, to provide some protection against the impact of inflation on bond investments.