Timber and Forestry Investments - A new Alternative Asset Class Opens up for Individuals - Page 2
3) Demand for timber is growing rapidly in China, and as the graph below demonstrates, the timber deficit in that country has been growing. I would expect that we will see the same trend of China buying what it needs as regards timber demand, putting investors on the right side of the "China trade".
4) Finally, forestry investments are also very much uncorrelated to global equities. Trees do not care whether global stock indexes go up or down, and the sources of their returns are quite different. To elaborate on this point, there are two main sources of returns in forestry investments. First, the price of the harvested lumber itself. Whilst of course prices of the lumber from the trees can fluctuate greatly depending on both economic conditions and the tree species, investors have considerable flexibility on when to harvest their timber, and if for whatever reason the price of lumber in any particular year is low, the investor can simply withhold harvesting and patiently wait until the price moves in their favor. In addition, the return from the investment comes not only from the price of the cut wood, but from the growth of the trees themselves. In the UK for example, only 4.5% of the forestry investing returns noted above were due to the price of the timber itself, meaning that over 60% of the increase was simply due to the growth of the trees.
The main downside of forestry investments - particularly direct ownership - is that it is a highly illiquid asset class and should be thought of as something to be held for at least 5- 10 years. Therefore, for those with a shorter-tem horizon, it is quite important to emphasize that you not been looking at investing in forestry
Of course, no investment is full-proof and forestry investments should be seen as just one small part of the "real asset" side of investors' portfolios', but if you are looking for stability, diversification and steady returns that are not correlated with global equities, investments in forestry are well worth a look.