"Investing in forestry as a trend had become very popular as markets become increasingly volatile," Rich Standeven, portfolio manager of investment trust Cambium Global Timberland, said.
The comments come as data showed demand for forestry assets increasing, sawlog costs rising world wide, and the asset class outperforming.
Performance of Forestry, ITs, Forestry Index and the FTSE All Share over 1-yr
Source: Financial Express Analytics
Data from the property industry's benchmark provider, the Investment Property Databank (IPD), showed that the forestry asset class returned 11.1 per cent to investors in 2009, up from seven per cent in 2008. The returns last year were the highest in the property sector, the body said.
Global sawlog prices, meanwhile, had their highest quarterly rise in over a year in the first quarter of 2010, as the Global Sawlog Price Index (GSPI) reached $76.77/m3. Sawlog prices measure the average price received per cubic metre of sawlogs from forestry commission sales.
Projections from Charles Stanley also show the Forestry sector is set for net dividend growth of 71.4 per cent in 2001, up from 1.2 per cent in 2010 and a huge increase on -38.4 per cent in 2009.
However, Jeremy Batstone-Carr, the group's research director, points out that Forestry is a small sector, and such growth could be an anomaly.
There are two investment trusts within the Forestry and Timber sector in the Association of Investment Companies (AIC) universe; Cambium Global Timberland and Phaunos Timber.
Standeven explains why forestry is a good portfolio diversifier: "Timber is uncorrelated with other investments – so long as the sun shines and the rain comes then trees will grow, regardless of the economy. It provides a good return unrelated to other asset classes."
He adds that the increasing exposure the sector has to the emerging markets is a boost for investors.
"We are seeing a shift away from US-centric investments to global. For example, Brazil is a country with a fairly developed forestry industry, and is a safer way for investors to get exposure in a developing country. There is also growing interest from investors in Asia, Latin America, and even in Africa – although that is obviously for the more adventurous investor," he says.
The Cambium Global Timberland trust is a pure play timberland investor. It invests in forestry properties rather than saw mills.
Another indication that the area is gaining momentum was last month’s $50m investment from the UK government’s development finance institution to develop the GEF Africa Sustainable Forestry Fund (GASFF). The fund will be run by Global Environment Fund (GEF).
"The timber sector is a reasonable investment premise, but the difficulty is that is a lesser known asset class. If you can be certain of value within a trust then now is a good time to invest, because the discounts [on timber investment trusts] are high," Paul Craig, manager of funds of investment trusts at Henderson Global Investors said.
"It is not a short-term investment, however. Over the long term, returns will be far in excess of cash, and higher than bonds. But for the short term investor it’s too risky," he added.