It is well known
that over the last 30 years Forestry has outperformed traditional investment
vehicles such as stocks, bonds and property, consistently showing investors
higher returns.
Forestry is a
strong inflation hedge because timber prices continue to float above the rate
of inflation even in the face of difficult economic downturns and poor
performance elsewhere.
The IPD annual
Forestry Index, 133 commercial forests returned 18.4% last year and have
averaged a staggering 21% a year since 2010 which is outgrowing the FTSE 100
share index which returned an average of 7.7% and commercial property which
made approximately 9-10%.
So why does forestry do so well?
Low Volatility
Forestry gives
investors a level of price stability over a longer term period that is more
comparable to fixed income instruments as opposed to higher performing equity
instruments.
Because trees
continue to grow if the price for the timber is low then you can simply let the
trees continue to grow until a desirable price is reached, this means that you
get the right price and the quantity of timber would have increased. When
timberland is included in a diversified portfolio, returns tend to smooth over
time, thereby reducing the overall portfolio’s risk level.
The Diversification Benefits
In addition to
lower risk returns and low volatility, timberland investments enjoy low
correlations with other asset classes. Combining timberland in a diversified
portfolio can lead to a more efficient portfolio. There tends to be a positive
correlation between timberland returns and inflation. This indicates to a
certain extent that timberland investments provide a hedge against inflation.
Supply and Demand
Historically,
demand for wood products has a high correlation with worldwide population
growth. World population is expected to increase 41% until the year 2050.
Liquidity
Although timberland
investments are relatively illiquid, liquidity is normally achievable in a
moderate period of time.
Environmental Responsibility
Timber is a
renewable, natural resource that provides ecosystems with benefits such as
clean air, clean water, and wildlife habitat and carbon sequestration. Usage of
timberland plantations ensures the preservation of natural forest lands for
future generations.
Until a few years
ago, retail investors were mostly shut out of this market. The deals were too
big, involving thousands of acres and tens of millions of dollars.
Big investors, like
university endowments and insurance companies, have long allocated money to
timberland in places like Oregon’s fir-and-spruce forests, Georgia’s pine
plantations and Appalachia’s hardwood groves.
Now it is possible to invest in forestry directly with land ownership
via EcoCrops International to view our website and see the latest forestry
investments we have available then please go to www.ecocropsinternational.com