Land
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For an open-minded investor, the idea of investing in land might bring to mind a range of dreams: a “sold” sign on a wide-open space near the mountains, an “under new ownership” notice for a busy apartment complex in an urban neighborhood, or a breaking ground on a commercial mixed-use space in an up-and-coming suburb. All are correct and more.
Land is a finite resource with many uses beyond real estate that range from farming to mining for natural resources and beyond. There is no doubt that investing in raw land gives investors options.
Although real estate markets ebb and flow, land tends to appreciate in value over time. This is no surprise given the dynamics of a limited supply, increasing demand, and a growing population. For example, according to the United States Department of Agriculture (USDA), “the United States farm real estate value, a measurement of the value of all land and buildings on farms, averaged $3,160 per acre for 2019, up $60 per acre (1.9 percent) from 2018.” That’s an increase of $1,610 per acre from 2005.
While buying land offers a broad range of investments from real estate to agriculture, investing in land isn’t a quick-solution or an endeavor to take lightly. Here’s what investors should know and consider.
What Are Land Investments?
Overall, there are three types of real estate investments: commercial, residential, and vacant or raw land. The uses for raw land can be further broken down into categories including row crop land, livestock-raising land, timberland, mineral production land, vegetable farmland, vineyards, orchards, and recreational land. Land can also be purchased and held until appreciation.
When it comes to land investment, things aren’t always as they seem on the surface. There are a number of different rights to be aware of, which include:
1) Air rights: An investor might own the land, but do they own the airspace above it? Not necessarily. Owning air rights gives the investor the right to use, rent, or develop the space above the land without interference by others. This often comes into play in commercial real estate when zoning requirements determine how many stories tall a developer can build.
2) Mineral rights: Mineral rights are “legal rights or ownership to the minerals below the surface of real estate, which can include coal, oil, natural gas, metals, and more.”
3) Water rights: Water rights “are the legal rights to use water from a local source such as a river, ditch, pond, or lake.” Water rights tend to be different in the East vs the West. In Eastern states, landowners who have a waterway that moves through their property may use water in a reasonable way, not unreasonably detaining or diverting it. In Western states, water rights must be established before using any source of water. In these areas, water rights are typically sold separately from land.
4) Zoning: Local governments and municipalities have established rules and regulations that determine how a property may or may not be used. Properties may be zoned as residential, commercial, industrial, agricultural, recreational, historical, or aesthetic. As a developer, it’s crucial to make sure that your plans align with the zoning requirements.
5) Ingress and Egress: If an investment property doesn’t have direct road access to the parcel of land on which it sits, formal easements may be required.
Simply put: when it comes to investing, not all land is created equal and research is required.
Why Invest in Land?
Land is a dynamic investment with lots of opportunity—it can yield high returns, passive income, and large profit margins. Investors can plan to develop raw land, buy and hold, buy and lease, buy and sell with owner financing, or flip the land as it is into something entirely new.
It’s possible to generate future income by purchasing raw land and doing minimal maintenance, (especially if you are planning to keep it vacant and let it appreciate). Investing in raw land for purposes of development, however, “requires more patience and a penchant for long-term strategies.”
Before investing, investors should calculate your cap rates, or an investment’s yields and potential risks. Regardless of how you plan to utilize land for returns— for farming, real estate, leasing, or other— investors should consider the trends in those markets both locally and nationally.
Investors should also consider taxes, especially when it comes to reselling land. If an investor owns a piece of land for less than one year before selling, tax rates can be as high as 37 percent, according to the Tax Policy Center.
Of course, for investors looking for a less direct, less expensive, and much less time intensive way to diversify into land investing, ETFs offer a range of opportunities. These include real estate ETFs or Real Estate Investment Trusts (REITS) and agricultural ETFs.
REITs typically invest in “securities that are related to mortgage financing of real estate, including not only mortgage loans but also mortgage-backed securities and similar derivative investments.” REITs may focus on their property type, such as residential, retail, healthcare, self-storage, industrial, office, hotel, data center, or timber REITs.
Moreover, REITs allow investors to get involved in real estate with smaller amounts of money than required to buy properties. If you consider that on average a home in the U.S. costs $200,000 and a commercial property can cost much more, it’s easy to understand that building a diverse real estate portfolio would be expensive. REITs, on the other hand, allow investors to buy shares of a grouping of a diverse range of properties with a share costing as low as $100.
Investing in land, particularly buying a plot of land for a specific purpose, is nothing to take lightly. While it can offer big returns, it also poses big challenges and requires extensive planning. ETFs offer another path that might be right for those interested in getting their feet wet. Either way, investing in this finite resource is likely to pay off in the long run.
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Magnifi is changing the way we shop for investments, with the world’s first semantic search engine for finance that helps users discover, compare and buy investment products such as ETFs, mutual funds and stocks. Open a Magnifi investment account today.
The information and data are as of the January 28, 2021 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi. This material is provided for informational purposes only and should not be construed as individualized investment advice or an offer or solicitation to buy or sell securities tailored to your needs. This information covers investment and market activity, industry or sector trends, or other broad-based economic or market conditions and should not be construed as investment research or advice. Investors are urged to consult with their financial advisors before buying or selling any securities. Although certain information has been obtained from sources believed to be reliable, we do not guarantee its accuracy, completeness or fairness. Past performance is no guarantee of future results. This content may not be reproduced or distributed to any person in whole or in part without the prior written consent of Magnifi. As a technology company, Magnifi provides access to tools and will be compensated for providing such access. Magnifi does not provide broker-dealer or custodial services.
Nuclear Power
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Nuclear power is a growing force “intrinsically tied to National Security” according to the U.S. Department of Energy, making it a force in global economics, politics and beyond.
In recent decades, the U.S. has ceded its competitive advantage in nuclear energy to China and Russia— something that politicians and industry leaders alike seem motivated to rectify. That’s a big deal considering that the global market for nuclear power could triple by 2050. Much of this growth is anticipated to come from increased demand from emerging markets.
The opportunity in engaging emerging markets with exported nuclear energy extends beyond financial. Nuclear agreements can translate to long-term strategic relationships, which is no surprise when you consider that the construction, operation and decommissioning of a nuclear facility can take years.
If the U.S. can take a leading role in developing these markets, it could both help to ensure national security and a leading role in the global energy marketplace.
But, Russia and China are both vying for the same position, increasing their nuclear production and developing relationships around the world. China, for example, has added 21 reactors in the past 5 years, with 19 more in the works. China also recently revealed its first domestically developed nuclear reactor. According to the China National Nuclear Corporation, the reactor can generate 10 billion kilowatt-hours of electricity each year and cut carbon emissions by 8.16 million tons.
Nuclear power is a highly competitive industry with long-lasting implications. Here’s what investors should know.
What Is Nuclear Power?
To understand the importance of nuclear power, it’s important to understand the basics of how nuclear energy is generated. According to the U.S. Energy Information Administration:
“Nuclear energy is energy in the core of an atom. Atoms are the tiny particles in the molecules that make up gases, liquids, and solids… An atom has a nucleus (or core) containing protons and neutrons, which is surrounded by electrons. Protons carry a positive electrical charge, and electrons carry a negative electrical charge. Neutrons do not have an electrical charge. Enormous energy is present in the bonds that hold the nucleus together. This nuclear energy can be released when those bonds are broken. The bonds can be broken through nuclear fission, and this energy can be used to produce (generate) electricity.”
Nuclear power plants conduct nuclear fission, which splits atoms apart to release energy. (Uranium is commonly used for this process.) The energy that is released in this process presents itself in the form of heat and radiation.
Nuclear energy is notably different from chemical burning, which produces carbon output.
Why Invest in Nuclear Power?
Nuclear power has long found opposition from environmentalists specifically because of the challenges associated with disposing radioactive waste. Even so, it’s anticipated that nuclear energy may play an essential role in a no or low-carbon energy future.
That’s right, nuclear energy is arguably more sustainable than natural gas and other fossil fuels.
In recent years, moving energy sources from coal to natural gas has been a key step toward decarbonizing. Switching from coal to nuclear power, however, is more “radically decarbonizing.” In fact, the only greenhouse gases released in the production of nuclear power are those associated with the “construction, mining, fuel processing, maintenance, and decommissioning” of a plant.
Another perk of nuclear power plants is that they offer a much higher capacity (that is, a greater percentage of time that the power plant spends producing energy) than both renewable energy sources and fossil fuels.
Consider that in the United States in 2016, “nuclear power plants, which generated almost 20 percent of U.S. electricity, had an average capacity factor of 92.3 percent, meaning they operated at full power on 336 out of 365 days per year” (with many of the days not in operation used for maintenance). This is much different than other power sources including U.S. hydroelectric systems, which delivered power only 38.2 percent of the time (138 days per year); wind turbines, which delivered power only 34.5 percent of the time (127 days per year); and solar electricity, which delivered power only 25.1 percent of the time (92 days per year), according to information provided by the U.S. Energy Information Administration. Coal and natural gas plants generally only generate power about 50 percent of the time.
In this sense, nuclear energy generation is more reliable and efficient.
So, do fewer carbon emissions and greater capacity outweigh radioactive waste? It can.
First it’s worth mentioning that non-nuclear energy, like coal, actually releases some radiation. Secondly, radioactivity decreases over time, unlike the waste products of other energy-production methods. Currently, interim storage facilities are used to manage nuclear waste until its radioactivity is decreased such that it can be disposed of. Storage containers, age, however, and when they do, they can leak toxic materials.
But, new technology is offering better storage solutions. Specifically, storage of waste in deep geological repositories is more secure and environmentally friendly. In Finland, the world’s first ever deep geological repository for spent fuel is under construction. The repository, named Onkalo, “is a game changer for the long-term sustainability of nuclear energy,” according to Director General Rafael Mariano Grossi.
The facility is roughly 450 meters below ground level and will collect all of the spent fuel from Finland’s nuclear power reactors for thousands of years. This is remarkable considering that sustainably developing nuclear power is anticipated to be an important step in preventing climate change.
Investors should know that even in a politically divided America, both “congressional Republicans and Democrats have shown their support for a robust domestic reactor fleet and for a strong civil nuclear export program,” according to EnergySource. As the U.S. ramps up its efforts to meet climate change goals, investors have the assurances of a growing and evolving nuclear energy market.
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Magnifi is changing the way we shop for investments, with the world’s first semantic search engine for finance that helps users discover, compare and buy investment products such as ETFs, mutual funds and stocks. Open a Magnifi investment account today.
The information and data are as of the January 4, 2021 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi. This material is provided for informational purposes only and should not be construed as individualized investment advice or an offer or solicitation to buy or sell securities tailored to your needs. This information covers investment and market activity, industry or sector trends, or other broad-based economic or market conditions and should not be construed as investment research or advice. Investors are urged to consult with their financial advisors before buying or selling any securities. Although certain information has been obtained from sources believed to be reliable, we do not guarantee its accuracy, completeness or fairness. Past performance is no guarantee of future results. This content may not be reproduced or distributed to any person in whole or in part without the prior written consent of Magnifi. As a technology company, Magnifi provides access to tools and will be compensated for providing such access. Magnifi does not provide broker-dealer or custodial services.
Aquaculture
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When you are shopping in the grocery store or picking out dinner in a restaurant, do you insist on wild-caught fish? Do you care if your fish is farm raised? Turns out, most people don’t. According to the United Nations, about 47 percent of the world’s total fish supply comes from aquaculture. This translates to a global aquaculture market that is expected to grow to more than $52.4 billion by 2026.
According to the Food and Agriculture Organization of the United Nations (FAO’s) 2020 report, “The State of World Fisheries and Aquaculture 2020,” per capita fish consumption grew from 9 kilograms in 1961 to 20.5 kilograms in 2018, equating to around 1.5% growth each year. Per the report, in 2017, fish consumption accounted for 17% of the world population’s intake of animal proteins, and 7% of all proteins consumed.
That’s a lot of fish, and a huge opportunity for the aquaculture industry.
The market is responding to huge demand growing fast, with annual fish production expected to expand from 179 million tons in 2018 to 204 million tons by 2030. According to the FAO, aquaculture production specifically is projected to reach 109 million tons in 2030, representing an increase of 32% compared to 2018.
Still, most people might be surprised to learn that the “the number of fish eaten from fish farms is roughly even with the number of wild fish consumed, especially as the demand for fish has grown,” according to UC Santa Cruz researcher Anne Kapuscinski.
Here’s what investors should know about the aquaculture industry.
What Is Aquaculture?
Simply put, aquaculture is the breeding, rearing, and harvesting of fish, shellfish, algae, and other organisms in all types of water environments, according to the National Oceanic and Atmospheric Administration (NOAA).
Aquaculture often takes place in coastal marine waters and the open ocean. Aquaculture in the US produces numerous species including oysters, clams, mussels, shrimp, seaweeds, and fish such as salmon, black sea bass, sablefish, yellowtail, and pompano. In addition to producing food, aquaculture restores habitat, replenishes wild stocks, and rebuilds populations of threatened and endangered species, according to NOAA.
According to the Agricultural Marketing Resource Center, the top five fish producing countries in 2019 were China (63.7 million metric tons), Indonesia (16.6 million metric tons), India (5.7 million metric tons),Vietnam (3.6 million metric tons) and Bangladesh (2.2 million tons). Asia accounted for 89 percent of world aquaculture production by volume, most of which was produced by China.
Why Invest in Aquaculture?
The world’s appetite for fish isn’t anticipated to slow down anytime soon. By 2030, the FAO anticipates that the global human population will eat 30 million tons of fish.
In part, that’s because the world is demanding more protein than ever. Two strong drivers of the growing aquaculture industry include an increasing population growth and protein consumption per capita. Where this growth can potentially leave oceans overfished and depleted, aquaculture offers a creative solution.
According to Forbes, the fish industry “is a decade or more behind all other production animals with respect to innovation — and thus is one of the more attractive opportunities…for agtech investors and startups alike.”
The industry, however, is not without challenges. From bacterial and viral infections among densely populated fish to environmental impacts, aquaculture isn’t perfect.
There is, however, ample opportunity for scientific solutions. For investors, this means investment opportunities in everything from improved vaccines to fish food to genetic engineering of fish that are more resilient and adaptable. According to Global Market Insights, the global aquaculture vaccines market alone will reach $290 million by the year 2025. Even more, supplying nutrients to the aquaculture industry is a $60 billion opportunity.
Investment in fish farming is happening now, and happening here. In November 2020, the company Pure Salmon announced that it will build a large indoor fish-farming operation in Virginia. Pure Salmon will invest about $228 million in the equipment and facility, which according to the news release, would be the “world’s largest vertically integrated indoor aquaculture facility.”
While aquaculture is lauded as more sustainable by comparison to the practice of overfishing, for example, there are some doubts about the ethics of it. To name a few, wild fish are often caught to feed farmed fish, questioning the efficacy of the system. Additionally, fish waste in densely populated open ocean farms can deplete oxygen in the surrounding marine environment. That’s not to mention genetic engineering, the living conditions of farmed fish, or other considerations.
For investors interested in environmental, social and governance (ESG) issues, the Coller FAIRR Protein Producer Index can help. The Coller FAIRR Protein Producer Index is the world’s only comprehensive assessment of the largest animal protein producers on critical ESG issues.
The market demand for fish isn’t expected to slow down. And as such, aquaculture is expected to grow as a crucial industry that helps to feed the world’s population. According to the FAO, “to ensure a food secure future for all, the fisheries and aquaculture sector is key.” This means that there is ample opportunity for investors as the fish farming market continues to grow and develop.
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The information and data are as of the December 21, 2020 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi.
Green Initiatives (ESG)
The sky over the Bay Area is covered with a smoke so thick that it is blocking the sun, leaving it orange and ominous. The image (even in a news article) is a wince-worthy reminder that we are in the year 2020, and the world is different.
With a record 900,000 acres of wildfires burning across Oregon, more than 10% of the state’s 4.2 million population have been evacuated, according to the Oregon Office of Emergency Management. That’s a lot of people, and evacuations aren’t anticipated to end there. In total, 12 western states are burning somewhere, with Oregon, California, and Washington most severely impacted.
“There’s certainly been nothing in living memory on this scale,” describes Daniel Swain, a climate scientist at the Institute of the Environment and Sustainability at the University of California in an interview with the New York Times.
Extreme weather is a new reality, and it matters a lot to the future of economies around the world. In January 2020, before the most recent fires, the Bank for International Settlements (an umbrella organization for the world’s central banks) predicted that the disruptive effects of climate change could usher in the next financial crisis.
This report was not a one off. According to the January 2020 Global Risks Report by the World Economic Forum, the top five global risks are climate-change related. Extreme weather, which includes floods, storms, wildfires and warmer temperatures, is putting millions at risk for food and water insecurity, property and infrastructure damage, and displacement.
Now, it’s September and we are looking from near or far at the hazy orange sky above the Bay Area wondering: what’s next?
Where climate change was once a theory that people accepted or not in the same way that they preferred cream or not in their coffee, things are changing fast. This is especially true among millennials, who are making no mistake about where their money is being invested, namely into sustainability-oriented funds.
In what might be considered a ray of hope in a strange world, their environmental investment dollars are starting to add up and smash investing records.
Here’s what environmental investing is and why it has more momentum than ever before.
What Is Green Investing?
In 2019, “estimated net flows into open-end and exchange-traded sustainable funds that are available to U.S. investors totaled $20.6 billion for the year,” according to Morningstar. “That’s nearly 4 times the previous annual record for net flows set in 2018.” This near exponential growth in investor interest is in part attributed to younger investors with a specific interest in the environment.
Perhaps even more impressive, in the first quarter of 2020, sustainable investing totaled $10.5 billion, keeping momentum despite the economic downturn ushered in by the pandemic.
So, where exactly are these dollars going?
It depends. When it comes to Environmental, Social, and Governance (ESG) investments can look much differently from one to the next.
For one, some investors have a specific interest in “climate change innovators.” According to MSCI, these are companies working to innovate and scale new technologies in a way that solves climate problems in new ways. Beyond investing in the next big technology that might lead us to a net-zero carbon world, investors are looking more and more at the environmental policies of the companies that they invest with across the board. These policies include water management strategies that use water responsibly and the prioritization of protecting biodiversity in corporate operations.
The relevance of biodiversity to our day-to-day lives is as close as the latest summer “Save the Bees” campaign. Honeybees are crucial for pollinating much of the global food supply, from apples to almonds. It’s estimated that bees are responsible for one of every three bites of food eaten in the United States. In addition to the use of insecticides used for many commercial crops, the destruction of habitat and decline in biodiversity have severely impacted this important species.
In other words, in today’s world, how businesses do business matters greatly, not only to the environment at large, but also to the long-term value of a company. To address that, companies are putting more effort than ever into describing how they meet sustainability standards in their business operations.
Why Invest in Sustainability?
In a letter to CEOs, Blackrock CEO, Larry Fink describes climate change as “a defining factor in companies’ long-term prospects.” According to Fink, “awareness [of climate change] is rapidly changing, and I believe we are on the edge of a fundamental reshaping of finance.”
Fink anticipates a “significant capital reallocation” into sustainable strategies as millennials, who are currently pushing for institutions to develop sustainable strategies and who will eventually become the policy makers and CEOs of the world.
In other words, environmentally focused investing is the future.
Not only is it becoming more popular among millennials, it is paying off for investors. According MSCI, “There is a direct, dollar-value payoff for companies to better manage their ESG risks or meet stated sustainability commitments.”
Interestingly, since the arrival of COVID-19, awareness to and demand for ESG products is on the rise. Not only did the pandemic accelerate interest in these products, it gave them an opportunity to demonstrate their resilience, with ESG investments less impacted by the pandemic-driven market drop in the spring.
If you are ready for a certain investment in an uncertain world, environmental investing is a natural choice.
How to Invest in Green Initiatives
The environment, of course, impacts every one of us and touches every industry. Investing in such a broad theme can be challenging for investors. Fortunately, a search on Magnifi suggests that there are a number of ETFs and mutual funds that can help investors access this growing and all-encompassing sector.
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Magnifi is changing the way we shop for investments, with the world’s first semantic search engine for finance that helps users discover, compare and buy investment products such as ETFs, mutual funds and stocks. Open a Magnifi investment account today.
The information and data are as of the September 14, 2020 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi. This material is provided for informational purposes only and should not be construed as individualized investment advice or an offer or solicitation to buy or sell securities tailored to your needs. This information covers investment and market activity, industry or sector trends, or other broad-based economic or market conditions and should not be construed as investment research or advice. Investors are urged to consult with their financial advisors before buying or selling any securities. Although certain information has been obtained from sources believed to be reliable, we do not guarantee its accuracy, completeness or fairness. Past performance is no guarantee of future results. This content may not be reproduced or distributed to any person in whole or in part without the prior written consent of Magnifi. As a technology company, Magnifi provides access to tools and will be compensated for providing such access. Magnifi does not provide broker-dealer or custodial services.
Real Estate
The headlines highlighting the rise of housing markets are as common as the “SOLD” signs on lawns in neighborhoods throughout the United States.
“Despite COVID-19, Philadelphia’s real estate market is booming.”
“Pandemic pushing Cape Cod real estate sales, driving prices up.”
But, who moves in the middle of a pandemic? Apparently, lots of people.
The world looks much different today than it did at the beginning of the year. Since the arrival of the coronavirus to the United States in January, people have adapted their lives and recalibrated their plans significantly. For many, that has included planning a move.
So, for all of the lost jobs and unknowns about how the economy will recover, the real estate industry is holding its own. Here’s what investors should know.
What’s Happening with Real Estate?
NYC real estate sales fell by 54 percent in the second quarter of 2020, amounting to the largest decline in 30 years, according to a report by Miller Samuel and Douglas Elliman. Orange County, California reported its biggest price decline since 2009, 5.2 percent. In other words, more and more people are saying goodbye to city living.
But, things in the suburbs are booming. After an initial dip in April, May showed strong market interest, according to realtor.com.With all of the uncertainty surrounding the pandemic, what is it that has moved people to start considering a move?
“Quarantine was the greatest accidental PR campaign for the value of real estate that I’ve ever witnessed. Now, people have been inspired to invest more into their homes and push their budgets just a little bit further,” according to Forbes real estate writer Ryan Serhant.
No doubt, after just a few months, people have new housing needs. Remote work is looking like the new norm. Outdoor space feels less optional. And suddenly many families with kids need to find space to not only work remotely, but also facilitate virtual learning for their kids. Welcome to 2020.
“Housing is a basic need, and the decision to buy one is usually prompted by entering a new stage of life,” according to housing website Curbed.
Add strong interest and new needs to attractively low rates, and the sales started. The average for 30-year fixed mortgages fell below 3 percent for the first time on record in June, prompting more people to consider buying. And so, the headlines and the “SOLD” signs followed.
So, If Everyone Is Working at Home, What’s Happening to Office Space?
For corporations, office space can account for the second largest expense following payroll. Companies know that. Moreover, these same companies realize that their offices are currently sitting largely unoccupied.
Companies are anticipated to reduce office space over the next three years, according to a report by CNBC. Similarly, a Reuters analysis of 25 large companies indicates that they plan to reduce office space over the next year.
According to a May report by Moody’s Analytics, “As employers have been compelled to execute remote working policies, national vacancies may break the 20% mark by 2021, and effective rents in some markets like New York may fall by close to 25%.”
But, not every business is turning in their notice just yet. Most office leases run from three to five to seven or 10 years, so some businesses are just stuck with the space.
That’s good news for investors, who aren’t feeling the pain.
According to Reuters, “concerns about declining office space use have not hurt commercial mortgaged-backed securities, with the iShares CMBS ETF up 4.4% for the year to date.”
Why the continued success?
Offices are useful for everything from building work relationships to expressing organizational values and aspirations, according to the Harvard Business Review. Companies, especially those with a nearly all-remote workforce at the minute, know that better than anyone. And so, commercial offices are probably not going away in their entirety. They will, however, emerge on the other side of the pandemic and are likely to look much different.
For one, office spaces might simultaneously scale down and become more dispersed, with flexibility to locate near clients and foster high-quality connections between staff, according to the Harvard Business Review.
Moreover, space will increasingly become mixed-use, extending its hours of life beyond the 9-5. This means offices that have retail, dining, and other features that invite community members, keeping the space busy beyond the workday hustle.
But, don’t expect a boom of new office space in the near future.
The Detroit Free Press reported in June about ongoing office space construction that might be at risk. In addition to the unknowns about the need for new, Class A spaces in the short term, the supply chains that delivers building materials have been impacted by the virus.
Part of the question is: will businesses decide to keep more remote work arrangements permanently, relocate their offices to less-expensive suburbs, or will they keep with the status quo?
Still, Real Estate Investment Is on the Uptick.
Despite all of the uncertainty, according to a Gallup poll, real estate remains a top investment choice for Americans. As the stock market looks more uncertain, real estate looks safer. Not to mention the historically low interest rates that have helped families move into new homes.
Roofstock, a platform for investors to buy and sell single-family rental properties, has experienced substantially increased web traffic since the coronavirus arrived, indicating that global investors are on the lookout for less volatile investment options.
The bottom line: real estate sales and investment is on the rise. The informed investor can find ways to invest in both residential and commercial real estate in unique ways.
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Magnifi is changing the way we shop for investments, with the world’s first semantic search engine for finance that helps users discover, compare and buy investment products such as ETFs, mutual funds and stocks. Open a Magnifi investment account today.
The information and data are as of the September 3, 2020 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi. This material is provided for informational purposes only and should not be construed as individualized investment advice or an offer or solicitation to buy or sell securities tailored to your needs. This information covers investment and market activity, industry or sector trends, or other broad-based economic or market conditions and should not be construed as investment research or advice. Investors are urged to consult with their financial advisors before buying or selling any securities. Although certain information has been obtained from sources believed to be reliable, we do not guarantee its accuracy, completeness or fairness. Past performance is no guarantee of future results. This content may not be reproduced or distributed to any person in whole or in part without the prior written consent of Magnifi. As a technology company, Magnifi provides access to tools and will be compensated for providing such access.Magnifi does not provide broker-dealer or custodial services.
Utilities
We turn on the water faucet every morning to brush our teeth and make our coffee. We click on the oven or the stovetop burner to cook our meals. We power up the heat when the air outside starts to chill or the AC on when the weather warms up. And then, like clockwork at the end of every month, we pay each of our utility bills.
Most of the time, utilities don’t come with many surprises. And, while costs always seem to go up, it’s usually a little bit at a time. But you likely already know this. Utilities are just part of life. Still, it’s possible that you’ve never considered the following: what would it look like if you invested in your utility services and they paid you like clockwork, as well?
Utility investments offer a unique way to diversify a portfolio— providing stability and returns almost as predictable as your monthly bill. Here’s why you should consider a utility-related investment product before your next billing cycle.
What qualifies as ‘utilities’?
Utilities include electricity, natural gas, and water and waste services.
American Water Works (NYSE:AWK), for example, is the largest publicly traded water and wastewater utility in the U.S. Through its subsidiaries, it services approximately 3.4 million active customers in 16 states. Over the last three years, it managed to grow its earnings per share by 9.1% per year, over three years. This past year, its revenue grew by 4.3% to US$3.6b.
The utility sector increasingly includes wind and solar. For example, NextEra Energy (NEE), which invests in renewable energy infrastructure, has performed well overall since its market debut.
At one-point telephone and cable companies were strictly regarded as utilities. In some cases, they still are (specifically landline services). But, improved technology and a changing, increasingly competitive market is transitioning them to part of the communications sector rather than a public utility.
Utilities, including electricity, natural gas, and water and waste services, typically have monopolies in the geographic regions that they serve. In part this is because the cost of building and maintaining a power plant, a grid network required for distribution of electricity, etc., and the customer service infrastructure to collect payments and meet the needs of mass users is expensive.
While the stability of no competition and a reliable customer base generally means that utilities are less impacted by economic downturns than other companies, it also means that they are regulated.
Regulation means that a government entity at the local, regional, and/or federal level participates in oversight. Typically, oversight would include the monitoring of utility rates for customers, regional growth rates, and service reliability. It limits the ability to easily make rate increases to adjust for a profit margin, for example, requiring that price increases be both necessary and approved.
Why invest in utilities?
Utilities are not a choice investment for making fast cash, rather they are a great way to diversify your portfolio. Considered a defensive investment, utilities can be a great tool to reduce overall risk. Utilities are generally regarded as a safe investment, more correlated with bonds than stocks, for a couple of reasons.
First, because utilities participate in a regulated industry, competition is generally stable and limited. They also rarely go out of business and because they have consistent customers who don’t have other options, they tend to have consistent revenue.
Second, because they are regulated entities, they have very predictable cash flow and profits. This allows utilities to pay consistent dividends, generating steady income for investors. They also pay relatively high dividends (typically 60 to 80 percent of their annual earnings) to shareholders in part because they have little need to reinvest earnings into operations. The need for energy resources to power our refrigerators, water from our sinks, etc. is all consistent regardless of the strength of the economy.
Investing in utilities that offer wind and solar opportunities can also provide a way for investors interested in environmental, social and governance to financially support companies aligned with sustainable values.
How to invest in utilities
Because of their infrastructure requirements, however, utilities tend to carry a lot of debt. This makes them vulnerable to rising interest rates. Higher interest rates both typically lower stock prices and increase debt for utility companies.
There are a number of ways to invest in utilities, but it’s most often wise to look for a mutual fund, exchange-traded fund, or company with diversified holdings. Diversification limits some degree of risk in the case of a natural disaster that damages infrastructure, for example.
However, utility-focused ETFs and mutual funds are a good way to access this sector without investing directly in individual utility providers. A search on Magnifi suggests there are a few different ways to do this.
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The information and data are as of the June 30, 2020 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi.
Forestry
One of the more interesting quotes often attributed to famed investor Warren Buffett concerns planning for the future: “Someone’s sitting in the shade today because someone planted a tree a long time ago.”
Forests take decades to grow and mature and only moments to destroy. Properly managing a forest involves meeting the economic necessities of the present while laying the groundwork for ecological health and economic potential into the future. Forests provide countless, critical ecosystem services, including storing and purifying water, stabilizing soil and preventing erosion, capturing carbon dioxide from the atmosphere, and fostering biodiversity.
Forests also provide significant economic benefits, including timber for construction, wood pulp for paper, and firewood for heating and cooking.
Historically, the ecosystem services and economic benefits of forests have often been in conflict with each other, with people often placing short-term economic benefits above long-term ecosystem health, ultimately at the cost of both.
For a recent example of this conflict, look no further than the 2019 Amazon rainforest wildfires. In an attempt to clear land for cattle grazing, ranch owners across the shrinking Amazon rainforest lit fires that quickly spread out of control, burning an estimated 2.3 million acres of forest and darkening the midday sky of cities hundreds of miles away.
Forests must be carefully managed in order to provide mankind with crucial economic benefits while also performing essential ecological functions. Millions of acres of burned rainforest may provide ranchers with a temporary economic boom in terms of a larger grazing area, but the long-term effects of haphazardly clearing forests result in dire ecological and economic costs.
Professionals in the forestry industry work to achieve a sustainable balance between the environmental and economic demands placed on forests. Though the management of forests is a very old profession indeed, the forestry industry is currently in the midst of a rapid modernization as business and environmental interests implement technological innovations that increase profitability and improve ecological health.
This modernization is especially significant because of the role forests play in fighting climate change. Forestry professionals are looking to innovation to help them do more with less, and the growing urgency to address climate change will likely mean that innovation will be highly valued.
For those interested in the investment potential of this important industry, there are a few key points to understand.
What is forestry?
The North Carolina Forestry Association defines forestry as “The art and science of managing forests to produce various products and benefits including timber, wildlife habitat, clean water, biodiversity and recreation.”
As an industry, forestry is vast, encompassing a multitude of business operations concerned with harvesting, transporting, refining, and distributing forest products. Deeper still is the underlying machinery and technology that make modern forestry possible. 100+ years ago, harvesting timber often involved men felling trees with axes or saws and transporting the timber to a sawmill via mule train. These days, timber is often harvested using cutting-edge technology, such as the cut-to-length (CTL) harvesting method. With CTL harvesting, specialized equipment cuts, cleans, and loads logs for transport in a matter of seconds, all while operators are safely inside the machine cabs and away from falling branches and dangerous terrain.
There is a growing movement in the forestry industry towards what is referred to as “precision forestry.” Precision forestry is an approach to managing forests that utilizes advanced technology to unlock greater economic and environmental value through improved information gathering and operational control.
For instance, lidar is a cutting-edge surveying technology that uses lasers to generate extremely detailed maps. After mapping a forested area using lidar, forestry professionals are able to accurately estimate the quantity of standing timber, as well as where the access road should be built and which machinery should be brought in to do the job. Better information through technologies like lidar means that forest managers are able to make decisions that improve cost-efficiency and minimize environmental damage.
When combined with other cutting-edge technologies, such as drones, soil sensors, and IoT-integrated devices throughout the harvesting and reforesting process, precision forestry is set to unlock significant value across the forestry industry.
Why invest in forestry?
While the accelerated adoption of advanced technologies is likely to improve cost-efficiency and drive innovation across the forestry industry in the coming years, current trends indicate that the industry faces tough headwinds. The demand for construction lumber, which surged in the years following the Great Recession, is waning, and domestic producers are facing increased competition from foreign lumber firms.
In the U.S., industry performance is highly correlated with the strength of the housing market: a robust housing market usually means more new homes and an increased demand for wood products.
For instance, Weyerhaeuser (the largest forest product company in the U.S.) experienced a sharp stock price drop as a result of the Great Recession and the collapsing housing market, from a high of $86 per share in early 2007 to a low of $15 per share in mid-2010.
U.S. revenues from forest products in 2019 totaled about $128 billion, and revenues from exports of forest products in 2019 totaled about $16 billion. Paper mills, which currently comprise the single largest segment of the U.S. forestry market, are forecast to see revenue decrease by -2.6% annually over the next five years. Sawmills and wood production, the second-largest segment, are forecast to see revenue increase by 1.1% annually over the next five years.
The segment with the fastest projected growth is prefabricated home manufacturing (think mobile or modular homes), which is forecast to see revenue increase by only 2.2% annually over the next five years – a sharp decline from the 8.6% annual growth the segment saw during the previous five years.
Successfully investing in forestry involves understanding the underlying market forces driving industry performance and trends, while assessing the value of a mid or long-term stake in the industry relative to other, higher-performing industries.
How to invest in forestry
However, forestry is a legacy industry that is dominated by a few major players. That means investors have few choices when investing directly, and that fact puts them at risk in the case of an industry-wide downturn. Investing in forestry via related ETFs and mutual funds, though, allows investors to access the space without tying them to any one company. A search on Magnifi suggests there are a number of ways to gain access to this segment via these funds.
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The information and data are as of the April 12, 2020 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi.
Climate Change
Once a year, the CEO and Chairman of BlockRock, Larry Fink, sends a letter to the CEOs of the world’s largest and most influential companies. BlackRock is the world’s largest asset manager with over $7 trillion in assets, so the annual letter always attracts a great deal of attention.
In the letter, sent on January 14, 2020, Mr. Fink argued that climate change is driving a “fundamental reshaping of finance,” and that “In the discussions BlackRock has with clients around the world, more and more of them are looking to reallocate their capital into sustainable strategies. If ten percent of global investors do so – or even five percent – we will witness massive capital shifts. And this dynamic will accelerate as the next generation takes the helm of government and business.”
For BlackRock to announce that it is placing sustainability at the center of its investment approach, and to argue that investors and businesses would be wise to follow suit, it is nothing less than a seismic shift with enormous potential implications. This isn’t some small company announcing that it’s placing a renewed focus on sustainability; BlackRock is a financial colossus, and when they say that they are rethinking their investment strategies because of climate change, investors around the world should sit up and pay attention.
It should go without saying at this point that climate change poses a singular threat to mankind and the Earth’s biodiversity. The World Economic Forum’s 2020 Global Risks Report, which annually identifies the most pressing global challenges, ranked “climate action failure” as the top global risk in terms of overall impact, and, for the first time in the report’s existence, the top five risks in terms of likelihood are all climate-related.
There is growing public pressure on governments and businesses to do more to address the threats, and an increasing number of Americans rank it as a top policy priority for the Federal Government.
Climate change is a problem that is so large and complex that it simply cannot be tackled by one group acting alone; as such, governments and businesses need to work together on the transition to renewable energy. As the BlackRock letter makes perfectly clear, the private sector can no longer afford to ignore climate change.
There are promising signs that this message is finally sinking in, as evidenced by recent announcements from several powerful companies detailing bold new climate action plans. Amazon, for instance, recently launched a new initiative called The Climate Pledge, which promises that the company will transition completely to renewable energy by 2030, order 100,000 electric delivery trucks, and invest $100 million in reforestation projects around the world.
In addition to this initiative, Amazon’s CEO, Jeff Bezos, recently announced that he was committing $10 billion of his own money combat climate change.
Not to be outdone, Microsoft made headlines recently with its own bold pledge, announcing that it would work to become carbon negative by 2050, in that it would “remove from the environment all the carbon the company has emitted either directly or by electrical consumption since it was founded in 1975.” Microsoft simultaneously announced that it was investing $1 billion in a “Climate Innovation Fund.”
These recent announcements, coupled with the ground-shaking BlackRock letter, make it clear that the risks posed by climate change are beginning to disrupt traditional investment practices. For the savvy investor who understands the magnitude of the changes that are beginning to occur, there is tremendous opportunity in combating climate change.
For those interested in the investment potential of this critical issue, there are a few important points to understand.
What Is Climate Change?
The United Nations explains the problem of climate change thus: “Greenhouse gases occur naturally and are essential to the survival of humans and millions of other living things, by keeping some of the sun’s warmth from reflecting back into space and making Earth livable. But after more than a century and a half of industrialization, deforestation, and large scale agriculture, quantities of greenhouse gases in the atmosphere have risen to record levels not seen in three million years.”
As greenhouse gasses concentrate in the atmosphere, more of the sun’s heat is prevented from radiating out into space, which slowly drives global temperatures up and creates a whole host of serious problems. According to the NOAA 2019 Global Climate Summary, “the global annual temperature has increased at an average rate of 0.07°C (0.13°F) per decade since 1880 and over twice that rate (+0.18°C / +0.32°F) since 1981.” 2019, the year that saw the devastating Australian wildfires and destructive Atlantic hurricanes, was the second-hottest year on record since record keeping began in 1880.
Efforts to bring together a solid, international coalition committed to tackling climate change have proved difficult thus far, with meetings such as the 2019 UN Climate Action Summit concluding without making much in the way of significant progress.
However, millions of young people in cities around the globe walked out of school on Friday, September 20, 2019, to express their anger at climate inaction and demand substantive, swift change. These young people are energized, politically active, and highly motivated – they represent the groundswell that will richly reward those who turn away from fossil fuels and toward innovative, renewables.
Why Invest in Climate Change?
Technological innovation is key to fighting climate change.
No matter how much we legislate, protest, and conserve, we need technology to help get us out of this mess. Thankfully, humans are nothing if not resourceful, and our desire to keep the planet safe and healthy for future generations means that the market for innovative, clean technology is going to continue to expand.
One challenge currently facing startups focusing on climate change is a lack of venture capital (VC) interest. For VCs, why put your money in a risky startup with moderate short-term returns when a software startup’s short-term return could be enormous? The answer to this question is rather simple: because the world is in trouble and the power of the almighty dollar can help.
Matt Rogers, co-founder of Incite Ventures, a fund that supports mission-driven enterprises, puts it another way: “Sitting on your pile of money while the oceans are rising may not help you stay dry.”
How to Invest in Climate Change
However, supporting a topic as broad and all-encompassing as climate change isn’t as simple as buying a few stocks. The issue crosses industry lines, investment segments and even international borders. That’s why it can be more impactful to invest in fund that are involved in a number of different businesses working on solutions related to climate change.
A search on Magnifi suggests that there are a number of different ETFs and mutual funds available to investors who want to get involved in climate change technology without having to invest in dozens of different companies directly.
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The information and data are as of the March 6, 2020 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi.
Solar Energy
As the 2010s drew to a close, a report published by the World Meteorological Association (WMO) issued the following stark assessment of the current global climate situation: “The year 2019 concludes a decade of exceptional global heat, retreating ice and record sea levels driven by greenhouse gases from human activities. Average temperatures for the five-year (2015-2019) and ten-year (2010-2019) periods are almost certain to be the highest on record. 2019 is on course to be the second or third warmest year on record.”
The report outlines the increasingly frightening consequences of global climate change, including warming ocean temperatures, deepening droughts, and sweltering heatwaves.
WMO Secretary-General Petteri Taalas summed up the gravity of the situation: “If we do not take urgent climate action now, then we are heading for a temperature increase of more than 3°C by the end of the century, with ever more harmful impacts on human well-being.”
Urgent climate action involves moving away from fossil fuels and toward renewable energy. This transition has been underway for years, and though there are positive signs that things are perhaps beginning to move in the right direction (global carbon emissions are growing at a slower pace, for instance), it has not been enough to adequately address the overall increase in global energy demand.
According to the Executive Summary of the UN’s recently published Emissions Gap Report 2019, “The summary findings are bleak. Countries collectively failed to stop the growth in global GHG emissions, meaning that deeper and faster cuts are now required.”
In order to achieve these critical emission cuts, renewable energy will need to replace fossil fuels as humanity’s primary energy source in the coming decade. One sector that has already made remarkable progress on this front, and that is poised for even greater progress in the coming decade, is that of solar energy.
Solar energy has become a serious global energy contender over the past decade as solar technology has become more efficient and affordable. According to the UN, global solar capacity increased from 25 gigawatts in 2009 to 663 gigawatts in 2019. This increase in installed capacity was greater than any other generation technology, fossil fuel or otherwise, yet solar energy still has tremendous room for growth.
In the U.S., for instance, solar energy accounted for only 1.6% of the total electricity budget in 2018, and all renewable energy sources combined accounted for 17% of the total. As policymakers and the public come to terms with the fact that rapid and dramatic cuts to carbon emissions need to be made to lessen the blow of climate change’s fury, the solar energy sector is extremely well-positioned to play a critical role in meeting the energy demand as renewable energy replaces fossil fuels.
For those interested in the investment potential of this rapidly-growing sector, there are a few important points to understand.
What Is Solar Energy?
Solar energy is energy that is generated from the sun and converted into thermal or electrical energy.
There are three primary ways to generate solar energy: photovoltaics, solar thermal, and concentrated solar power.
- Photovoltaics directly convert sunlight into electricity by harnessing the electrical current produced when semiconducting materials are exposed to sunlight. Solar panels on the roof of a home or in an array on a satellite are examples of photovoltaics.
- Solar thermal technology works by absorbing heat from sunlight and using it to warm air, water, or other materials. A roof-mounted solar water heater is an example of solar thermal technology.
- Concentrated solar power works by using mirrors spread over a large area to concentrate the sun’s rays to one small point in which water is heated to steam to drive a turbine. If you fly from Las Vegas to Los Angeles and look out your window as you head southwest, you will likely spot the intense glow of the Ivanpah Solar Power Facility in the desert below you. The facility is one of the largest of its kind in the world, and according to the facility’s owner, BrightSource Energy, “the electricity generated by all three plants is enough to serve more than 140,000 homes in California during the peak hours of the day.”
Why Invest in Solar Energy?
The most compelling reason to invest in the solar energy sector comes down to the simple fact that renewable energy is actively replacing fossil fuels as the dominant global energy source. This replacement is likely to accelerate as energy demand increases and as the public demands a faster transition and a more significant commitment to clean energy.
Solar is well-positioned to capitalize on the rapidly-changing energy landscape because the sector has undergone incredible innovation in recent years.
One recent breakthrough in material science, for instance, boosted the maximum efficiency of a photovoltaic solar cell from 29% to 35%.
Another breakthrough is the development of perovskite, a synthetically manufactured material that is more efficient and cheaper to produce than the silicon in traditional solar cells. Another key reason solar energy is well-positioned for the coming changes in the energy market is cost-competitiveness.
According to a November 2019 piece in Bloomberg: “The levelized cost of any particular energy technology is the break-even price that companies investing in that technology need in order to see a competitive rate of return. In the case of both utility-scale solar and onshore wind power, this rate has dropped to about $40 per megawatt hour — which is lower than the cost of building new power plants that burn natural gas or coal. It’s even close to being competitive with the marginal costs of running the coal and nuclear plants we already have.”
According to market analysis by the International Energy Agency, global renewable energy capacity is expected to grow by 50% between 2019 and 2024, with solar photovoltaics accounting for almost 60% of the total expected growth. Private and public investments in solar energy are rapidly increasing, and the sector’s cost-competitiveness, combined with increased efficiency and the urgency of combating climate change, make solar energy a smart investment for the future.
How to Invest in Solar Energy
Given the volatility of the energy sector, however, investing directly in solar energy-related companies can be risky. A search on Magnifi suggests that there are a number of different ways for investors to get involved in solar without opening up their portfolios to undo concentrated risk in this new and growing sector.
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This blog is sponsored by Magnifi. The information and data are as of the Dec 12, 2019 (publish date) unless otherwise noted and subject to change. This material is provided for informational purposes only and should not be construed as individualized investment advice or an offer or solicitation to buy or sell securities tailored to your needs. This information covers investment and market activity, industry or sector trends, or other broad-based economic or market conditions and should not be construed as investment research or advice. Investors are urged to consult with their financial advisors before buying or selling any securities. Although certain information has been obtained from sources believed to be reliable, we do not guarantee its accuracy, completeness or fairness. Past performance is no guarantee of future results. This content may not be reproduced or distributed to any person in whole or in part without the prior written consent of Magnifi. [As a technology company, Magnifi provides access to tools and will be compensated for providing such access. Magnifi does not provide broker-dealer, custodian, investment advice or related investment services.]
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Magnifi is changing the way we shop for investments, with the world’s first semantic search engine for finance that helps users discover, compare and buy investment products such as ETFs, mutual funds and stocks. Open a Magnifi investment account today.
The information and data are as of the May 28, 2020 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi.