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Special Report

Timber Investing - March 2012

Published by Investment Adviser | Mar 26, 2012

With only 13 per cent of the world’s surfaces covered with forests and growing concerns over deforestation and illegal logging, combined with the spectre of global warming, supply is severely restricted.

One of the wood types most readily associated with deforestation in recent years has been teak. With a high natural oil content, the wood is renowned for its strength and durability, and not only provides investors with a commodity that is growing in demand, but one which can help to protect the environment.

Growth

Teak is a fast-growing species. At just six months, the trees are already roughly three metres tall, and within two years, are well established, with a considerable canopy mass.

Alongside this fast growth, teak has fast rates of sequestration, meaning that large amounts of carbon are absorbed from the atmosphere and stored in the wood at very high levels.

Robert Hague, sales director at socially responsible investment house Emerald Knight, adds: “The teak investment is unlike any other commodity. It yields more stable returns than the stockmarket, outperforms other commodities in high and low inflation environments, and unlike real estate, timber land is limited and can’t be overbuilt. Essentially, it’s a long-term, low-risk investment.”

Emerald Knight’s Teak investment involves semi-mature trees and offers

a fixed 10 per cent annual return, increasing to 12.5 per cent depending on the size of the initial investment. There’s an additional bonus from the ‘thinning’ years, which is given after the first year of investment, then every four years thereafter.

The investment period is up to 18 years, with an option to exit at any stage after three years with capital returns plus a five per cent uplift.

Access

The timber market has opened up for investors, having for years only been available for those with enough money to invest in the land or forest itself. Now investors can gain access through open-ended, closed-end and exchange-traded funds.

There are also certain tax advantages to holding an investment in timber – namely with regards to inheritance tax, income tax and capital gains tax. On page 42, Anthony Crosbie Dawson, portfolio manager at FIM Services, explains that there is no IHT and no CGT on an increase in the value of timber and no income tax when selling trees.

Investing in this form of alternative asset class is not, however, for the faint hearted and returns really only materialise after a number of years.

Jenny Lowe is features editor at Investment Adviser

IN THIS REPORT
  1. The cost to investor and environment

    Timber prices have been increasing for some time and are set to continue to rise with global demand

  2. Preparing for timber falls

    While investing in timber has much potential, the risks involved also need careful consideration beforehand

  3. The growing demand for sustainable forestry

    As the global population grows, the demand for timber could see an 55 per cent increase by 2050

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