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  • Archive for July, 2010

    Ethical Investment Trend Set to Continue

    2010 - 07.29

    From my blog you may gather that I am somewhat of an advocate for forestry investments but they are worth keeping an eye on as the World is going through a phase for everything green. Prompted primarily by international pressure to reduce CO2 emissions.

    No matter what type of investment, investors will always seek to capitalise on large returns and if ethical or ‘green’ investments are able to generate them then so much the better for the environment. Interest is particularly high in forestry investments since they have many benefits to recommend them, such as: returns of 10-14% per annum (on average), portfolio diversification and they are very environmentally friendly.

    There is also no shortage of demand for forest products. Companies that require natural resources for their products range from handmade greeting cards, tissue paper to furniture makers.

    So bearing all that in mind with the trend for green investments set to continue now might be a good time to make it an important part of your portfolio.

    The Timber Investment Blog is sponsored by Greenwood Management. For more information on investing in Forestry please click here

    Pulp Exports to China

    2010 - 07.28

    In 2009 pulp exports to China grew from 2008 levels of 1.2 million tons to 2.8 million, this is a growth of 128%. China has become Brazil’s second leading market, ahead of the US and during this time the sector gained a 47% market share in imports of bleached eucalyptus kraft pulp. Of which the world production is led by the Brazilian industry.

    This expressive growth could be a result of a strategy by the Chinese paper industry who put aside sizeable investments to increase production of eucalyptus based products, such as in the printing and tissue paper sectors. Known for its high quality the drop in commodity prices favoured the Brazilian input inventory last year.

    With strong pressure from the World Trade Organisation (WTO) and the United Framework Convention on Climate Change (UNFCCC) for China to reduce its CO2 emissions, China is keen to make efforts to attain high sustainable standards. This is what makes Brazilian pulp so attractive, besides its high quality it is also known for coming from a planted forest, it is a natural renewable resource, it has a highly productive output and acts as a carbon sink, while it is growing.

    The Timber Investment Blog is sponsored by Greenwood Management. For more information on investing in Forestry please click here

    Now is the Time to Launch a Forestry Fund

    2010 - 07.27

    October heralds the launch of a regulated forestry OEIC to retail investors from Green Oil Plantations. They have already confirmed that they are in talks with two asset management companies to launch the forestry fund, with aims to harness the opportunities coming out of Australia’s drive for 20% renewable energy by 2020.

    Returns will be generated from a variety of methods, such as: carbon credit sales in the open market and the sale of biofuel from tree’s seeds.

    Patricia Ellis, director of Green Oil Plantations, said the decision to launch an OEIC has followed the success of their unregulated funds, of which they have two.

    She explained, “It is most likely to be an income fund and we are likely to have more information towards the end of July – we appreciate the appeal of a regulated market but we are not only going to sell regulated products.”

    Since the start of the year Hornbuckle Mitchell, Lifetime Sipp, Brooklands Trustees and Pointon York have given their approval to Green Oil to allow its unregulated funds into their SIPPs (self-invested personal pension).

    Green Oil aren´t the only ones to launch a fund in the forestry sector, in this past year Stellar Asset Management launched a second forestry fund. With the rise in capital gains tax now is the time to launch a forestry fund according to Jonathan Gain.

    He explained, ‘The attraction isn’t simply tax relief and the feel good factor, although the 100 per cent inheritance tax, income tax and CGT relief does make forestry an attractive investment for many.”

    ‘The outlook for forestry is also immensely appealing at this time. There is considerable demand for uses such as construction, packaging and home improvement and the forests can also provide additional income from communication masts and allowing the constructions of wind farms on the land.”

    ‘Timber is also harvested and distributed to renewable energy power plants, which is a market with substantial capacity for growth.”

    The Timber Investment Blog is sponsored by Greenwood Management. For more information on investing in Forestry please click here

    Forestry Investments Grow in Popularity

    2010 - 07.15

    All the way back in 2007 the American housing bubble was near bursting and the S&P 500 stock index approached its post 9/11 high of 1,562. At this time forestry was one of the expert investor’s favourite asset due to its high real returns, safety and its unbroken record of rising during all great equity bear markets.

    And things haven’t much changed in three years; forestry is still a popular investment along side stocks and emerging markets. To quote Jeremy Grantham the chairman of Boston based investment firm Grantham Mayo Van Otterloo, “If the sun shines and it rains, the trees grow about on schedule.” During an address in New York at the Ira Sohn Investment Research Conference, the GMO chairman said that he expects timber to earn 6% per annum over the next seven years.

    Looking back over the last twenty years or so it appears that Grantham’s enthusiasm for forestry hasn’t been misplaced. From 1987 to 2009 the National Council of Real Estate Investment Fiduciaries (NCREIF) Timberland Index, earned a compounded annual return of over 14%. By comparison the S&P 500 had a compounded annual return of 9.4% during the same period.

    Unfortunately forestry investments are notorious for having a history of uncorrelated returns. The correlation of the Barclay’s Aggregate Bond Index since 1987 has been just 15%, whereas the NCREIF Timberland Index with the S&P 500 has been roughly 35%. During the same period the correlation between the timberland index and the consumer price index has been 45%. This suggests that forestry has been a good long term inflation hedge.

    Investing in timber couldn’t be easier either with timberland investment management specialists that offer a form of private equity whereby investors can become direct owners of specific plots of timber bearing land. And this isn’t just reserved for the very rich. Investments with forestry management specialists such as my sponsor Greenwood Management can start from as little as €7,695.

    The advantages to investing in forestry are that it adds diversification to an investor’s portfolio as well as providing a safety net; as value is stored in the stump so the longer the tree is left to grow the more valuable it becomes. This is unlike gold as values may go up but the amount you started with will always be the same.

    While no asset class is devoid of risk, this asset class has a lower level of risk than others. Forest fires and natural disasters are extremely rare and all reputable forestry investment specialists will be insured against this. Should prices go down in the projected harvest year the harvest can be put back till a time when the timber prices are more favourable. Unlike most harvests trees don’t have an expiry date!

    The Timber Investment Blog is sponsored by Greenwood Management. For more information on investing in Forestry please click here

    Forest Code Amendment Passes Crucial Vote

    2010 - 07.14

    In a move lamented by indigenous groups, scientists, social NGOs and environmental campaigners the controversial amendments to Brazil´s Forest Code has passed a crucial vote in the Congress’s Special Committee on Forest Law Changes. This move could see dramatic increases in deforestation as it threatens to open up an additional 85 million hectares for legal clearing in the Amazon.

    The alternate bill will also reduce the level of forest cover protecting the river and stream banks. The control of the land clearing in these areas would be given over to the regional and local authorities who are largely under the influence of large landowners and agribusiness interests.

    It was the gradual strengthening of the Forest Code and the more recent improvements in enforcing the code that has lead to Brazil’s success in scaling back the horrific levels of deforestation in the Amazon over recent years.

    However research presented at a seminar earlier in the year by NGOs including the WWF showed clearing exceeded the legal requirements by over 40%. The bill proposes to offer amnesties on existing fines for illegal clearing; in essence this would make the illegal clearing legal. In the WWF-Brazil’s opinion the amendments were hardly debated and as it is likely that it will be passed by the Lower House then it will nullify all the efforts the Brazilian Government has gone to in order to preserve Brazil’s forests.

    The only real chance of the bill being halted is if President Lula chooses to veto it. However with the elections coming up in October controversial legislation such as this, traditionally either takes a back seat in the immediate run up to the election or is pushed through by the present government.

    The Timber Investment Blog is sponsored by Greenwood Management. For more information on investing in Forestry please click here