Timber Investments

Investment in timber, or rather the more general timber trade, is one of civilisation's oldest and most enduring commodity markets. As a staple construction material, as well as having countless other uses from furniture to paper, consumer products and as fuel.

Both institutional and private investors are, however, becoming aware of this unassuming comodity. Its secure and low-risk nature is being adopted as a stabalising hedge against inflation and volatile stock-based and geo-politically sensitive assets.

As an added incentive, as well as being lower risk in nature, returns on timber and forestry investment have also outperformed stock and bond assets over the long-run. In the past two decades, year-on-year returns have been in the mid-teens, over the 8-12 year investment cycles usual in the industry.

37% of US pension funds and 52% of endowments have invested in timber, predominantly having added forestry assets in the recent past.

Timber and forestry investment holds the added kudos of being considered a 'green' investment. A hectare of forestry binds between 10 and 100 tons of CO2 per year, varying dependant on the type of tree. Investment in forestry companies with good corporate social responsibility practises offers the opportunity to potentially earn excellent returns while simultaneously contributing to reforestation projects and driving local micro-economies.

So what are the key factors that have meant timber has been such a stable investment for such a long time, as well as looking good well into the future?

• Global demand for wood products will march upward as populations grow and economies expand.
• Timber has historically generated high returns during inflationary periods (over 20% annually from 1973-1981).
• Unlike a crop of wheat that you harvest in September and take whatever you can get, with timber you can hold out.
• Timber can be managed economically as a renewable crop on hundreds of millions of acres worldwide. Given the forces supporting the conservation of forests in their natural state on many public and some private lands, there is increasing pressure on the remaining privately-owned forests to supply the needed timber output. This represents an excellent opportunity for patient, long-term investors.
• Timber has unique characteristics, including the biological growth of trees. This consistent, predictable growth is the major component of timberland returns. In addition to volume-boosting biological growth, trees also become more valuable per board foot as they grow larger (called in-growth) because they can be used to create higher value products.