VIEW-Timber equities offer value in illiquid market
Swiss asset manager Pictet is planning to exploit an expected demand spike and supply squeeze in timber markets through hitherto neglected equities.
Close Brothers profit drop in "challenging" marketTimber investment is touted as the ultimate long-term steady earner, with a low correlation to other asset classes, and the option of harvest deferment if timber prices dip.
The investment case is fairly simple: demand for timber is rising as emerging markets consume more paper, tissues and nappies, and a supply squeeze is forecast as forests are lost.
The only way to access the market has been through illiquid direct investments which demand specialist knowledge - and patience: a typical fund will have a minimum term of 10 years.
But Pictet wants to exploit accounting rules which mean many companies holding timber are forced to undervalue those assets.
Gabriel Micheli, co-manager of the PF (Lux) Timber Fund, said: "We see a very good opportunity to buy these undervalued stocks that have safe assets, increasing in value over time, and with a very interesting dividend yield," of usually between 6 and 7 percent.
Despite difficulties in direct investment, interest has grown substantially in the last five years, forcing up forest prices and reducing yields.
Eva Greger, managing director of GMO Renewable Resources said capital inflow in the last five years has focused on buying existing forests, rather than establishing new plantations.
This has bid up timberland so that rates of return have declined and there has been a compression in the risk premium.
In comparison, timber equity remains undervalued, as under GAAP accounting rules there is no way for U.S. firms to report yearly return from forest growth.
|
|
