Whether or not the economy is improving, one investment type stays strong. Timberland investments returned 10.2 percent in 2014, up from 9.8 percent the year before, according to the National Council of Real Estate Investment Fiduciaries. As stated on the Forest Investment Associates’ website “even during the most difficult economic times, trees grow, compounding in both volume and value.”
The strength of timberland investments is something that Peter Mertz, CEO of Global Forest Partners, knows well. GFP has been investing on behalf of institutional investors for nearly 30 years. One of the oldest and largest forestry advisers, GFP invests globally, currently focusing on Australia, New Zealand and Latin America with investments in softwood and hardwood, as well as high-value species such as teak, and a number of value-added assets.
The investment advisory company invests in purpose-grown forests, or planted forests, that offer a variety of benefits. Mertz says this type of timber investments are beneficial because, unlike natural forests, they offer less variability and therefore less risk; additionally, planted forests provide uniform raw materials, have a small global footprint and high productivity.
There are, of course, risks with every type of investment. Mertz says, “While no investor who has invested with us and held their investment to maturity has ever lost money in our nearly 30 years of investing, timberland is an investment. And not all investments succeed.” He adds that with timber investments specialized expertise is important, and discipline and patience are required to be successful.
Timberland investments make for great portfolio diversifier, says Mertz. “If properly structured, timberland can derive a portion of its return from low-risk attributes, such as forest growth.” However, timberland investments take years to see returns because the trees have to grow before any profit is seen.
According to the Forest Investment Associates’ website, as the economy improves and more people look to buy houses, timber investments will only continue to improve as well. And the global demand for timber should also increase in coming decades as the middle class demographic in countries such as China, India and Brazil continues to expand, along with their housing needs. Like any investment, timberland has its pros and cons, but those looking for long-term, low-risk investments should consider an allocation to timberland.