Unfortunately, despite or perhaps because of the strength of recovery in equities markets generally and strength of continuing returns from other assets, the sector has lagged in relative terms.
Over 12 months to 23 September, the FTSE All Share has returned 5.6 per cent, according to Financial Express data, much better than the Cambium Global Timberland, -14.4 per cent, or Phaunos Timber Fund, -17.4 per cent.
Over six months the performance of the two funds splits markedly; with the Cambium fund returning 13.6 per cent, against Phaunos’ -27.8 per cent.
Source: Financial Express Analytics
It is not as clear cut as saying that this is a sector to be avoided altogether, though.
The offshore Pictet Timber SICAV offers units in multiple currencies. Launched on 30 September 2008 and investing in a global spread of timber companies that own or manage forests and timberland, its dollar accumulation units returned 75 per cent over the past six months, and 50 per cent over the year-to-date.
But, what of the future of returns from Forestry & Timber in the UK?
One challenge in spotting trends is the time period between publications of key data. The last update by IPD for its Forestry Index only covers data to the end of 2008, during which period it did still record positive movement.
| Total Return (TR) % |
Timber price change % |
|
| 2008 | 7.0 | -28.5 |
| 3-years | 19.3 | 7.5 |
| 5-years | 16.2 | 9.3 |
| 16-years | 5.2 | -2.9 |
Source: IPD
However, IPD analysts have noted that timber prices in the UK, as measured by Forestry Commission Timber Price Indices do not bode well for immediate returns.
The Coniferous Standing Sales Price Index dropped 28.5 per cent in nominal terms in the year to March 2009 against the previous year, according to the latest available figures.
The Softwood Sawlog Price Index dropped 26.2 per cent in the six months to March 2009 against the same period last year. These indices are expected to be rebalanced over the coming month.
However, long-term the UK market for timber products suggests good fundamentals in favour of investing in domestic forestry and timber.
On the supply side, Forestry Commission figures suggest the volume of new planting of woodland has dropped by half from 10,700 hectares in 2007 to 5,900 hectares for its 2009 year. The figure has slumped from about 30,000 hectares in the late 1980s. Restocking has picked up the slack, remaining fairly constant at between about 16,000 to 19,000 hectares since 2005.
Other figures suggest that the value generated to the UK economy from forestry and primary wood processing grew from £1.8bn in 2003 to £2.1bn by 2007. In that same year the UK was the world’s third biggest importer of forest products in dollar terms, behind the US and China. With the ongoing weakness of sterling since then coupled with the mentioned sales price weakness over the past 12 months there could be some impetus towards more demand for domestically sourced timber.