Forestry Investments Outperform S&P 500

June 24, 2010 - PRLog -- With the volatile markets being as they are …well volatile it is perhaps surprising to some that forestry investments have been continuing to outperform the S&P 500.

Interest has grown somewhat with the advent of a broader public awareness of climate change and the rush by governments to combat it. Indeed in the scramble for governments to be seen as ‘green’ some interesting opportunities for investors have sprung up. Such as the REDD + scheme which was the only good, as far as I can see, that came out of the Copenhagen talks. Under this scheme the industrialised nations have pledged funding for the forest rich developing countries to halt deforestation. The idea is that the forests become more valuable standing than cut down and sold as timber.

This of course poses a problem for those countries with large timber industries as the demand for timber hasn’t suddenly vanished. There are two answers to this problem. The first is to log illegally, however for obvious reasons this isn’t advisable. The second is to turn to managed forestry plantations. Aside from the environmental benefits, such as the plantations are typically grown on degraded land and that the trees act as a carbon sink while they are growing, there are also significant economical benefits.

For an investor interested in managed forestry plantations the key economical facts they should know are that due to the nature of trees the investment is long term. Depending on the tree specie the investment duration could run from a minimum of 6-8 years (Eucalyptus) up to 15-18 years (Pine). The advantages to investors is that because the trees can be cut down at any time once they are fully matured the exit can be timed to when the market prices are at their peak.

In terms of returns, Greenwood Management has conservatively estimated an average return of 10-16% per annum for their eucalyptus project in Brazil. This is based on the harvested eucalyptus being processed into charcoal before being sold on to the Brazilian steel industry as an energy source used in the steel producer’s blast furnaces.

This particular investment allows direct investment into the farming activities of Greenwood Management and therefore is not structured in a similar way to that of an agricultural or forestry fund share investment. The way it works is that investments are representative of a fractional ownership of the eucalyptus crops currently under management. All profits received from these areas know as ‘forestry units’ and are returned to the client once the timber has been processed and sold.  

The advantages of this structure are that the investor has ownership rights to a tangible asset as opposed to the investor ownership of a share certificate. The management team is experienced in agriculture and agroforestry operations over a number of years, having already grown, harvested, processed and sold eucalyptus into the local markets. In addition there are no exposure issues that arise from equity markets and fluctuating share prices.

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About Greenwood Management: Greenwood Management specialises sustainable forestry investment, particularly in Brazil. Greenwood Management has been actively involved in agriculture, forestry and agroforestry operations in Brazil for several years now. Greenwood Management is a European company, incorporated in Denmark with a subsidiary agricultural operating company (Greenwood Agropecuria ltda) situated in Barrerias, Bahia, Brazil. For more information please go to www.gwm-tv.com.