Sponsored by Forest Enterprises
Investment in forestry in New Zealand can be a great way to diversify an investment portfolio. Forestry is a longer-term investment with low volatility, and projected returns reflect this.
Forestry can be a great socially responsible investment, creating a renewable resource, and a way to invest for future generations of your family, as the investment period is about 26 years.
How log prices affect your returns
Log price is a key determining factor in your returns during harvest – which could be about 20 years from the time you invest.
When log prices change - or share prices for that matter – it’s important to put it into the context of your investment. Forestry is a longer-term investment. When you invest for the long term, current market ups and downs have a lesser impact on your investment returns.
The average log price over the harvest period determines your ultimate return on investment. The longer you’re in the market, the more likely you are to achieve the long-run average log price. Two months of low prices during a seven to 10-year harvest programme will have less of an impact than during a shorter harvest period.
Anyone with shares will see the stock market go up and down too. But forestry investment is all about time in the market, not timing the market.
Good management is vital
Forest Enterprises chief executive Bert Hughes was recently in China, where he was looking at the market there.
Good management of forestry investment is key to successful returns, he says. “It’s important to have a plan, and stick to the plan.
“It’s important to react to the current price changes sensibly and not do things that hinder the long-term goals of our harvest programme.
“This means looking for the ‘least-harm solution’ in the short term, while preserving the ability to produce logs into the future.”
Hughes is experienced and an ‘older hand’ in the forest investment industry.
“I’ve worked through several times when price and demand corrections hit. They’re unsettling for all involved. The usual pattern is, first there’s price and supply tension, then rapid price fall, followed by some instability while we all find the new level to make the business work. Price and demand then recover, and we march on.”
Diversity is key
Investing in alternative assets like forestry is complementary to shares and property for diversifying and lowering the risk of an investment portfolio. Forest investment performance is not correlated to share market returns.
Diversification applies as much to forestry as it does to any investment portfolio.
Forest Enterprises supports several local customers to help reduce risk in log pricing and routinely supplies domestic sawmills.
“Currently, returns from domestic customers are better than export returns but lower than the long run trend price,” Hughes explains. “In simple terms, greater customer or product diversity means lower price volatility, but does not always mean higher price.”
Forest Enterprises’ investment in pruning trees produces a price premium for investors from high-grade prune logs, as well as diversifying the overall product mix from log sales.
Why invest with Forest Enterprises?
A Forest Enterprises investment is a direct investment in land and trees for one rotation of the forest crop (about 26 years). The Kiwi company has a 47-year track record of helping more than 6,600 investors grow their wealth through forestry. Forest Enterprises has 20,000-plus hectares under management in the North Island and over NZ$450 million of assets under management.
Managing the risk
No investment is without risk. In forestry investment, risks can include risk to the crop – for example fire, pests or disease. The price of logs can go up or down, meaning returns fluctuate, depending on supply and demand. However, time in the market when harvesting is a positive. There’s extensive insurance over Forest Enterprises’ managed forests, and a team of experts work hard to help mitigate any risks. When considering an investment, a financial adviser can help work out what’s best for you.
Fast facts on forestry
· Forestry exports are our third largest export earner, behind dairy and meat.
· The plantation forestry and logging sector directly accounts for 0.6 per cent of GDP or NZ$1.39 billion, plus a further NZ$2.16 billion in downstream activity.
· New Zealand forestry exports are NZ$6.38 billion. Australia and China are the main destinations.
· 9,500 full time employees are employed in the forestry sector, plus 2,000 truck drivers and 900 port services workers.
· Forestry production has risen from 10 million cubic metres in 1989 to 28.7 million cubic metres in 2016.
For more information and a copy of their latest Product Disclosure Statement, contact Forest Enterprises.
First published 26 August, 2019
Forest Enterprises is the business name of Forest Enterprises Growth Limited and its subsidiary Forest Enterprises Limited. Forest Enterprises Limited is licensed under the Financial Markets Conduct Act 2013 to manage Managed Investment Schemes (excluding managed funds) which are primarily invested in forestry assets.
This article does not contain any financial advice and has not taken into account any particular person’s circumstances. Before relying on it, we recommend you speak with a financial adviser. This story reflects the views of the contributor only. Content comes from sources that we consider are accurate, but we do not guarantee that the content is accurate.
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