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  • 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

    One Response to “Forestry Investments Grow in Popularity”

    1. Dietmar Seitz says:

      I am a 54 years-old german landscape architect and I am interested in investing
      in forests. We think about buying own land. Please send me informations
      about your projects.
      With kind regards
      Dietmar Seitz

      Adolf-Wissel-Strasse 18
      30926 Seelze, Germany

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