The Pictet-Timber fund has marked its second anniversary with continued outperformance of its benchmark. At 30th September 2010, the Pictet-Timber fund managed by Pictet Asset Management, had returned 24.72% in sterling since inception on 30 September 2008 on a gross income reinvested basis, ahead of a 21.16% sterling gain in the MSCI World Index.
The fund targets the timber theme by investing in listed stocks, with a focus on companies that own and/or manage forests and timberland. This approach enables investors to profit from the timber asset class, while offering the liquidity and convenience of a conventional investment fund. This asset class, which until recently was accessed largely through private equity, yields attractive long term returns with low correlation and diversification benefits.
Gabriel Micheli, the lead fund manager currently sees interesting valuations in timber stocks and comments “as timber-scarce economies such as China continue to develop, this material, which for many uses cannot be substituted, will benefit from strong demand-led growth. This scarcity is compounded by the alarming rate at which forest areas are shrinking owing to factors as diverse as conversion into agricultural use, or large scale epidemics such as the mountain pine beetle which has decimated most of the commercial-grade and reasonably well situated trees in British Columbia.”
Micheli continues, “Market pulp prices are still at very high levels, The financial crisis has stopped all new pulp mill projects, meaning that new capacity cannot be brought on stream until 2013 at the earliest.”
“Trees grow in size and value over time, regardless of economic conditions. We favour companies that own timberland (in contrast to those that have long-term leases), which tends to improve returns over the years”, says Micheli. “We also focus on companies located in the Southern Hemisphere, where trees grow rapidly, offering a low cost structure.”