Farmland / Timber Funds

Computer_Beginner

I've been considering agricultural land and timber investment as a future diversifier away from equities (and bonds, which I'm less keen on these days).

Does anyone have experience of funds in agricultural land and / or forestry?

I've looked at some forestry ETFs online (eg WOOD). Anyone bought them?

I have read that UK agricultural land is currently highly valued (with very small yields of about 0.5pc).

I've also read that in the UK, forestry and agricultural land can attract generous IHT exemptions, so maybe that is pushing up the prices by encouraging direct ownership from wealthy individuals? Maybe this is a disadvantage for the small time retail fund investor?

The other issue I've encountered is that forestry investment schemes seem to attract scams, seemingly to a greater degree than (more standard) equities. Why would this be? Is it just a function of being a less established market?

Forestry has its issues (reduced paper demand due to computers, forest fires, etc. It seems to have had quite a peak in returns recently (like farmland). Maybe due to QE?

As a novice in this area, I'd be interested to hear from other people's experiences and opinions.

Alexland

As a novice you would be better sticking to mainstream financial solutions for now. From what I can see WOOD invests in companies which may or may not own land. Unless you have particular insight into this industry and the factors that affect the profitability of these companies this would be niche and high risk.

Alex

Computer_Beginner

Alexland wrote: »

As a novice you would be better sticking to mainstream financial solutions for now. From what I can see WOOD invests in companies which may or may not own land. Unless you have particular insight into this industry and the factors that affect the profitability of these companies this would be niche and high risk.

Alex

Thanks.
Yes, I had noticed that when briefly reading up on a few of the companies held by WOOD.

Computer_Beginner

I had previously looked at direct ownership of woodland (in the UK). But that seems very uneconomical as a retail investor. For forestry blocks to be viable you'd need to put in hundreds of thousands of pounds at a minimum.

I'd expected to find a UK based 'mainstream' forestry fundquite easily, but I haven't.
I'm quite curious as to why not. There may be something obvious I'm missing, because it seems a simple concept.

kidmugsy

Computer_Beginner wrote: »

Forestry has its issues (reduced paper demand due to computers, forest fires, etc.

You are thinking of conifers. Anyone who hopes to get a "forest fire" burning in British broadleaf woodland is doomed to disappointment.

Computer_Beginner

kidmugsy wrote: »

You are thinking of conifers. Anyone who hopes to get a "forest fire" burning in British broadleaf woodland is doomed to disappointment.

Most of the investment woodland I looked at was conifer.
Also a lot of the 'mainstream' companies (eg those held by WOOD ETF) are USA based.

Computer_Beginner

kidmugsy wrote: »

You are thinking of conifers. Anyone who hopes to get a "forest fire" burning in British broadleaf woodland is doomed to disappointment.

Most of the conifer plantations I've seen have fire breaks, but obviously the fire may jump / spread through them or start separately in the next block.

That's probably one benefit of having sections of the plantation growing and harvested at different stages; as well as providing income in stages, it also means that not all the trees are vulnerable to fire etc at the same time.

One thing I like about forestry is the ability to choose when to fell the trees. That's not something that can be done with wheat etc.

Alexland

These companies are likely to be significantly more complicated than just worrying about the risk of fire or when to cut the trees down. You would need a real depth of knowledge before this could become an investable opportunity. Even then you might learn enough to find out you wouldn't want to invest.

Alex

bostonerimus

Computer_Beginner wrote: »

As a novice in this area, I'd be interested to hear from other people's experiences and opinions.

Buying into a niche sector can be a fast way to lose lots of money. Stick to well diversified global equity and bond funds. Don't try to get clever. - keep it simple and commit to the long haul.

Zanderman

I've no experience of investing in this sort of thing - but I do know a bit about agriculture and land management.

I wouldn't put my money anywhere near it!

It's a high risk area - lots can go wrong.

The future of it is very unclear with Brexit looming - the future financial basis of all agricultural practice is unknown now - all the current certainties have become uncertainties. There could be a huge crisis ahead.

Plus you need to know exactly what you're doing, so it's not suitable in any way for a novice.

And forestry investments in particular have, as you acknowledge, a long and ongoing history of scams.

I'd steer well clear.

Apodemus

Computer_Beginner wrote: »

One thing I like about forestry is the ability to choose when to fell the trees. That's not something that can be done with wheat etc.

Tell that to all the plantation owners having to change felling plans and rushing to harvest in the face of disease at the moment!

They are also having to harvest a crop against an economic and infrastructure backdrop that is very different from when the planting decisions were taken in the 70s. For example, industry-standard haulage trucks are now at least 50% heavier than they were when planting decisions were made, which is fine if you invest in a plantation beside a main road...not so great if your investment is up a remote glen, where the bridges now have a 7.5 tonne weight limit!

Only invest in forestry if you really know what you are doing!