iNVEZZ on The Private Investor’s Forestry Investment Options

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Investors’ portal iNVEZZ has recently published an analysis by author Frank Quin, which takes a look at the different routes available to a private investor, who is considering investing in forestry.



Investing in forestry can serve as a good inflation hedge

Invezz author Frank Quin begins his analysis by pointing out the attractiveness of a forestry investment relative to other alternative investment classes. Investing in forestry can serve as a good inflation hedge or to increase the stability of an investment portfolio otherwise biased towards financial securities. Quin cautions that diversifying a portfolio with an investment in forestry carries the risk of greater price fluctuations.

The iNVEZZ analysis points out a necessary distinction that needs to be made between what is essentially a real estate investment in forestry or in the downstream production of forestry products. The author explains that purchasing a forest, or an area of forest, will carry significant costs due to high forestry land prices in the UK and other developed countries. Furthermore, to generate any sizeable income an investor would have to buy at least 100 to 200 acres of forestry land. But even then, the income stream from direct forest acquisitions has shrunk significantly over the past twenty years. An individual private investor who lacks the experience of managing a forest should also consider the costs related to hiring an expert to do so.

Quin continues his analysis by looking at another, more realistic option for private investors to invest in forestry. He writes of the opportunity to buy into a syndicate, where an existing investor is looking to divest or fresh capital is being raised to expand the project. An alternative for an entry into such type of forestry investment is for the investor to join a new syndicate that is being created to fund the establishment of a tract of forest.

Having explained both direct forestry investments and investing through a syndicate, Quin looks at a more liquid forestry investment – exchange-traded securities in either dedicated woodland owning, forest product companies or in holdings which include forestry or forest    -generated products. The iNVEZZ piece differentiates between ETFs and REITs, looking at the advantages and weaknesses of both investment vehicles. While REITs will typically hold pure woodland assets, ETFs may track both physical timber as a commodity, woodland and downstream and upstream forestry-related businesses.

In its concluding paragraph the iNVEZZ piece summarizes the pros and cons of all three forestry investment strategies, while cautioning that anyone considering investing in this alternative asset needs to educate themselves on the risks involved.

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John Adam
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