Investors follow forest trail into timber funds
THE smell of pine, the old decorations, the endless dropping needles – the traditional Christmas tree is truly a priceless experience.
But Britons who opt to shun a lifetime of fresh spruces and immediately put the money into a forestry fund would turn £6,500 into nearly £3m by their 65th tree-free Christmas, according to figures from Gresham House.
The asset manager, which recently started its first timber fund, assumed a yearly net profit of 10pc for those prepared to trade a five-foot tree for cold, hard cash.
“As an asset class, timber is continuing to surge in popularity and it’s not just institutional investors who are capitalising on the opportunities. Increasingly, family offices and ultrahigh-net-worth individuals are allocating more capital to differentiated and illiquid assets, such as commercial forestry,” said Rupert Robinson, managing director of Gresham House Asset Management.
Forestry is a long-term investment that can sometimes grow as slowly as the spruces themselves. The S&P Global Timber & Forestry Index, which tracks 25 public companies involved in the industry, has risen 11pc in the last year, although a plunge in prices during the financial crisis meant its performance is flat over a decade.
Investing in one of the UK’s commercial forests has generated 18.4pc a year over the past 10 years, after a slide in values as the market was flooded with lumber from the Baltic states, according to the IPD Forestry Index.
More than £130m-worth of forestry changed hands last year, according to the estate agent Savills, yet this represents just 21,000 hectares (58,890 acres) of the country’s 1.35 million hectares (3.2 million acres) of managed trees.
Income from timber sales is free of income and corporation tax, and after two years the investment is exempt from inheritance tax. However, woodland funds often require large upfront investments and the returns depend on sales up to 40 years after the trees were planted.
Just over half of the country’s forests are in private hands, with the rest held by state bodies such as the Forestry Commission, set up after the First World War to restore the country’s depleted woodland. Around 13pc of the UK is now covered in forests, up from 5pc in 1919, yet there is a supply crunch for commercial trees looming after 2020 that is set to increase the UK’s reliance on imported wood.