‘Liquid Investment Theory’ (LIT) is Liquid Investments’ tailored approach to portfolio diversification and builds upon Modern Portfolio Theory (MPT), itself used in one form or another by all fundamentally driven investors. The premise behind MPT is simple: prudent risk management dictates that investors should have access to a broad, diversified range of investments that in turn will reward them with higher returns. It aims to mitigate exposure to risk and optimize reward; outperformance in some markets will compensate for any underperformance in others.
In Liquid Investments’ case, a focus on alternative assets in Brazil allows the company to utilize the country’s unique position and strengths: these include being a top 6 global economy, enjoying a free-floating, independent currency and high levels of currency reserves and foreign direct investment. The current economic uncertainty that continues to pervade multiple developed markets reinforces the view that global investors now need to rapidly increase their exposure to this asset type.
By focusing on investments in tangible alternative assets providing a greater degree of security (such as asset secure farmland), with products that deliver consistently higher level of returns (currently a double digit annual yield) than traditional asset classes to a wide variety of end-user markets, LIT allows investors to participate in the consistently rising demand for the company’s commodity-based products. Simultaneously, they are being protected from fluctuating trends in the marketplace by the multiple end uses for the output. If demand should ease in one of our specific end-user markets, the completely different market dynamics in the other sectors the produce services (consumer, industrial, medical or agricultural) means that any slack can be taken up with no disruption of earnings.
LIT provides multiple layers of safety to investors by minimizing the possibility that part of their investment exposure will fail to deliver. This will generate a higher level of profit potential and security, useful in today’s low visibility, highly volatile financial markets.Using these criteria and stratifying our investment products allows the following key variables to be covered in Liquid Investment Theory:
Agricultural land is a particularly attractive asset due to its widening supply-demand imbalance, but also its uncorrelated returns to more conventional instruments such as equities and bonds, important in an era of greater volatility and lower returns. Since the 2008 global financial crisis (GFC), institutional investors have invested an estimated $40 billion into global farmland, with non-institutional buyers putting in another $10 – $25 billion. Farmland is a tangible finite resource in a world where the supply of suitable arable land is shrinking.
Investing in physical agricultural commodities like coconuts or neem can be a natural hedge against rising inflation, as well as against the volatility and low visibility in bond and equity markets. Inflation and commodities are natural bedfellows, and as commodities tend to be uncorrelated with any other asset class, they have an on-going attraction at times of market uncertainty. The demand for agricultural commodities is being driven by a rapidly growing global population, especially in emerging markets, which enjoy economic and consumer growth far in excess of economies in the West. Increasing demand for food, stockfeed, green energy and fertilizer will underpin the future price of agricultural commodities.
Unlike many of the non-mainstream global currencies, the Brazilian Real is not pegged to the US Dollar, Euro or Sterling, making it truly free-floating and independent. Brazil is the second largest exporter in Latin America, with central bank reserves equivalent to the rest of the continent combined, and is also the recipient of the highest levels of Foreign Direct Investment (FDI) across the continent. Better still, due to a 200 million population growing in prosperity and the ability to consume, forecasts suggest that domestic demand will grow at a faster pace than exports.
Our agricultural commodities are valuable crops, with a diverse range of products supplying an ever increasing number of applications across a range of sectors in the agricultural, consumer and pharmaceutical industries, adding a further level of diversification.
Brazil remains fresh as an international investment story, and by 2015 it is forecast to be the world’s fifth largest economy. The inherent strength throughout the Brazilian economy set against the uncertainty and volatility elsewhere in key emerging markets (primarily China and India) make us very confident in the prospects for the country. A stable democracy, Brazil is beginning to assert itself on the global stage as both an economic and political powerhouse.