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S. J
S. J
Vertente I 2
S. J
Talismã II 4
Iracema II 4

Characteristics

     Forest assets consist in of a range of different asset types: planted forests established mainly for wood production; natural and semi-natural forests managed for wood; non-wood products; carbon sequestration; and biodiversity conservation. Assets typically consist of both land and the standing growing stock of the forest, but investments can also be made in just one or another.

     Timberland can improve an investment portfolio's risk-adjusted returns by virtue of its fairly low correlation to most asset classes, according to much of modern portfolio theory-based research. This low correlation reflects the fact that the primary driver of returns - biological growth -  is unaffected by economic cycles. Timberland also exhibits a moderate correlation to inflation, and research indicates timber assets may serve as a good long-term hedge against unanticipated inflation.

Low correlation to the NCREIF timberland property index;

 

     Given its low volatility and its low correlation to most traditional investment classes, forest assets are characterized as an excellent alternative for portfolio diversification, providing a reduction in the overall risk of the managed portfolio.

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Correlations of selected asset class indexes to the NCREIF* Timberland Index

correlation coefficient

Source: Indufor 2013 - Bloomberg

*The NCREIF Timberland Index is a quarterly time series composite return measure of investment performance of a large pool of individual timber properties acquired in the private market for investment purposes only. All properties in the Timberland Index have been acquired, at least in part, on behalf of tax-exempt institutional investors - the great majority being pension funds

Inflation Hedging :

 

     They also offer a natural hedge against inflation, due to its high correlation with this indicator.

Source: PEI Media - 2010

Correlations of NCREIF* Timberland Index with inflation

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*The NCREIF Timberland Index is a quarterly time series composite return measure of investment performance of a large pool of individual timber properties acquired in the private market for investment purposes only. All properties in the Timberland Index have been acquired, at least in part, on behalf of tax-exempt institutional investors - the great majority being pension funds

Return linked to biological growth:

 

     The effect of biological growth on timberland return comes from two sources: when a tree grows (volume) it also turns into a higher-value products (in-growth). Above all, the biological growth is independent from macroeconomic conditions or financial market performance.
 

     The rest of the returns from timberland are more dependent on external factors, although sales can be temporarily postponed if timber prices fall. Land-price changes usually account for a small portion of the total timberland investment return. However, increasing competition for land to be used for agriculture and bioenergy production, or for recreational use, can provide major upside potential because of land appreciation.

Historical sources of timberland return

Biological Growth 65-75%

Timber price variation 20-30%

Land Growth 2-5%

Source: Timberland investments in an institucional portfolio - 2013

Source: The definitive guide to Investing in Timberland - 2013 PEI Media Ltd.