Timber and Forestry Investments - A new Alternative Asset Class Opens up for Individuals
Forestry and timber investing - the very concept seems either dull or extremely alien. After all, its’ much more satisfying to follow the rest of the herd and chase the latest hot social networking stock such as Facebook or Linkedin. However any investors - especially those looking for true diversification and stable returns - are making a real oversight by ignoring the value timber and forestry investments could bring to their overall portfolio.
One question that is always worth considering when looking at investments is where are large institutional investors putting their money? This is not to say that big investors are always on the right track - they can be driven by the same emotions and herd mentality as individuals - but at least it helps give smaller investors a sense of which types of investments are seeing large amounts of money flowing into them.
One asset class that has seen a substantial amount of money flowing into it recently is forestry investments. Just to give one example, there is a new Russian Chinese joint-venture that is putting US$200 Million into forestry investment opportunities. Likewise, Harvard University in the United States – which has the largest endowment of any academic institution in the world – is making a major push into timber and forestry investment.
There are a number of factors that make timber and forestry investments attractive:
1) As a "hard asset," timber investments are an excellent hedge against inflation. With the US Federal Reserve looking closely at QE3, as well as the ECB being pressured to stop the rot in Europe by buying government bonds from the Club Med countries on a massive scale, any type of inflation hedge investment is worth considering. There is generally a close correlation between timber prices and overall prices in the economy, and that sense timber can act as a hedge much like precious metals do.
2) The returns on timber investing have been quite impressive. Consider some basic statistics on the returns from timber and forestry investments. In the UK, the average annualized return for the IPD (Investment Property Databank) UK Forestry index for 10 years is 10.4%. In the United States meanwhile, the National Council of Real Estate Fiduciaries in the United States (NCREIF), timber returns since 1987 through 2010 have averaged 15% a year. Indeed, the graph on the next page allows you to visualize how timber has had only three down years in 47 years.Continued on the next page