Source: Financial Express Analytics
The performance of the two trusts in this sector varies greatly. The Cambium Global Timberland trust has lost 30.25 per cent for the year ending 3 March 2009. The trust is trading at a discount of 29.63 per cent, possibly due to the low trading frequency of such a specialist investment. The fund’s returns and volatility of 20.65 per cent are similar to those of the equity index but the trusts low correlation with UK equities means it could still offer diversification benefits.
The Phaunos Timber Fund has done far better than its compatriot. In the six months to the 2 March 2009 the trust had only lost 1.94 per cent compared to Cambium Global Timberland’s loss of 28.5 per cent. The trust has also fared well versus the equity market. Over the same six month period the trust outperformed the FTSE All Share index by 33.45 per cent. The fund has a higher correlation to UK Equities than its rival but still low enough to offer some diversification. It’s higher than average volatility however, will mean it’s not suitable for all investors; even once the diversification effect on the portfolio has been taken into account.
The outlook for such a specialist sector is always difficult to predict. As a physical commodity the demand for timber should be heavily influenced by the economy, with the housebuilding industry being of particular importance. Sadly for timber investors, the demand for new homes has nosedived along with people’s chances of getting a mortgage. It seems no sector is safe from the fallout of the credit crunch.
Although the Coniferous Standing Sales Price Index for Great Britain had fallen 8.6 per cent for the year ending September 2008, a large portion of these trust’s holdings are overseas, particularly in North and South America. Latin America has to an extent shielded itself from most of the financial crisis; with it’s financial markets being less liberalised they were less exposed to the idiocy of the City’s finest. The domestic economies are also holding up well despite the troubles of the large northern neighbour. Returns from this region may turn out to be more robust than may have been expected. Likewise, despite the struggling US economy, the strong dollar and weak pound are ensuring returns don’t suffer as much as had been feared.
The sector therefore, could be an interesting alternative for those wishing to diversify their equity portfolios while still taking a cyclical bet on an economic recovery.