This article was written by expert contributor, Wilson Asset Management
This is part 3 in a 4-part series on real assets and the investment opportunities.
The bull case for timber
The global timber investment industry is dominated by North America, which accounts for approximately 70% of institutional investable timberland. The attractions of this part of the asset class are perhaps best summarised by the old market adage, “share prices may fall, but the trees will still be standing”.
Like agriculture, timber is well-placed to benefit from some established global megatrends, including the drive to rely on more sustainable raw materials as a result of the climate crisis. Timber has, of course, been a key material for the housing industry for centuries, and this does mean that there is a relatively strong correlation between timber prices and the broader economy through construction demand.
This means that income returns from timber can be more correlated to mainstream asset classes than other parts of the real asset universe. The capital value of timberland is much more stable, offering excellent downside protection during periods of broader financial market turmoil.
An emerging investment opportunity
Despite some very positive investment characteristics, timber is still seen as an emerging investment opportunity. It is also a highly specialised asset class because it requires a combination of global scale and local expertise.
Scale is required to build an appropriate level of diversity by geography, climate zone and species.
Local expertise is needed to effectively manage risk within each asset. Bushfires, for example, represent an obvious risk and, although modern technology is starting to play a greater role (drones are taking over from the traditional watchtower approach, for example), it tends to pay to have an experienced local property management team in place.
All of these things combine to make successful timber investment difficult and expensive. There are only a handful of providers that do it properly, but the long-term returns that can be delivered when it is done well are impressive.
Part 1 – What are ‘real assets’?
Part 2 – Real assets: Agriculture – grow your own performance
Part 4 – Real assets: Water rights -the ultimate liquid investment
Wilson Asset Management has a track record of making a difference for shareholders and the community for more than 20 years. As the investment manager for eight LICs – WAM Capital (ASX: WAM), WAM Leaders (ASX: WLE), WAM Global (ASX: WGB), WAM Microcap (ASX: WMI), WAM Alternative Assets (ASX: WMA), WAM Strategic Value (ASX: WAR), WAM Research (ASX: WAX) and WAM Active (ASX: WAA) – Wilson Asset Management invests over $5.4 billion on behalf of more than 120,000 retail investors.
Wilson Asset Management created and is the lead supporter of the first LICs to deliver both investment and social returns: Future Generation Australia (ASX: FGX) and Future Generation Global (ASX: FGG). Wilson Asset Management advocates and acts for retail investors, is a member of the global philanthropic Pledge 1% movement, is a significant funder of many Australian charities and provides all team members with $10,000 each year to donate to charities of their choice. All philanthropic investments are made by the Investment Manager.
Prior to making an investment decision, retail investors should seek advice from their financial adviser. This document is intended as general information only.