Investment in Forestry

 Forestry investing is becoming more popular and more accessible for the average individual investor. At one time (early 90’s) , direct investment was the most common option and so inevitably the smaller investor tended to be somewhat marginalised. Now they can choose from unit trusts, investment trusts, exchange-traded fund (ETFs) etc.

Growing Returns

 According to the IPD UK Property Index, 2007 (the most recent year for which figures are available) was an exceptionally strong year of performance for UK forestry; where the average total return was 31.6 per cent, up from 20.6 per cent in 2006 and double the 14.4 per cent total return in 2005.

 In 2007, the annualised three-year return was 22.0 per cent per annum and the five-year annualised return was 15 per cent. At this point, the 15-year annualised return since the start of the index in 1992 was 5.1 per cent per annum.

 The 31.6 per cent return meant forestry investments outperformed equities, Gilts and commercial property, and for the first time since the inception of the index in 1992, it had also outperformed all three of the other asset classes over the three-year period to 2007 (outperforming gilts and commercial property over the five-year period as well).

Forestry is a compelling investment opportunity for a many different groups of investors: from those looking simply for profits or a hedge against equity investments to those looking for an environmentally sound home for their money. Its proponents argue that in forestry they can find all three.

Global reach

Another key aspect of these funds is that they invest on an international basis, drawing on the expertise of specialist advisers. An eg. of this is Silva Tree, a company that is engaged in conservation, re-forestation and renewable energy projects in Costa Rica. These include: The Carbon Offset Reforestation Project, which helps to conserve and replace the Costa Rican rainforest by purchasing rainforest plots from private owners.

Forestry investments are a specialist area and this is true when dealing with projects in developing economies. The Director of Oxigen Investments, which specialises in the production of tropical hardwoods, such as teak and agarwood, from its own commercial sustainable plantations, points out: ‘”Despite the volatility in the stock markets, timber prices have remained extremely stable. Shares go up and down, but trees keep on growing.’

He adds, ‘Even if timber prices should weaken, tree owners can simply let them grow and in so doing they would be storing value on the stump … till prices recover. Thus timber is a fantastic “set it and forget it” investment. There is also a growing demand from socially conscious investors to see their money grow while also being able to contribute toward reducing global warming.’

Tax incentives and diversification

Forestry also offers tax incentives for investors, particularly for capital gains tax purposes (in UK) – the increase in the value of timber is exempt from CGT(Capital Gain Tax). While any increase in the net value of the land on which the trees are growing can be assessed, land value currently only accounts for approximately 15 per cent of the value of mature woodland.