Why Invest?

Real assets, in the form of woodland, can offer many attractive benefits to investors including good investment returns, portfolio diversification, an attractive risk/return profile, serving as an inflation hedge and a substantial cash flow contribution.

Further, given its renewable nature and carbon-neutral footprint, the opportunity to provide ecosystem services (water, landscape improvements) and to improve habitats and biodiversity, woodland investment is attractive to those investors who place socially responsible investment and climate change mitigation high on their agenda.

UK Forestry can offer good investment returns

According to the Investment Property Databank (IPD), UK forestry has given higher investment returns than other asset categories over the last ten years.

The annual return from a sample of private sector plantations of predominantly Sitka spruce in mainland Britain in 2015 was 10.8%.

Annualised investment returns (IPD, 2015)

Asset Class

1 Year

3 Year

5 Year

10 Year

UK Forestry

10.8

14.7

19.0

18.4

Equities

 -2.2

  5.2

  4.8

  4.7

Gilts

  1.0

  2.3

  5.4

  5.6

Commercial property

13.1

13.8

10.5

  5.7

UK Forestry has a low correlation with other asset classes

To maximise the risk-reward ratio of a portfolio, it is desirable to combine assets which have a low (or negative) correlation.

The 20 year total return correlation between UK asset classes is summarised below (Source: IPD UK Land Investment Briefing, May 2016).

20 Year total return correlation between UK asset classes and UK forestry

Asset Class

Correlation with forestry

UK Forestry

1.0

All Property

-0.09

Equities

0.12

Bonds

0.07

There are two main reasons for this low correlation.

Careful choice of a portfolio of woodland investments, including a diversity of species and age classes enhances this effect and improves portfolio diversification.

Forestry is an excellent hedge against inflation

The main expenditure for forestry investments is normally the purchase price, which is paid at the beginning of the investment.  However, the revenue is generally received some time in the future.

As a result, forestry acts as a good hedge against inflation.

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