Issue 30: 2015

In Brief

Wood Pellets Ignite Interest

Nuggets of dried biomass could be the next big thing in sustainable fuel.

First three images from left: monty rakusen/getty images; fourth image: tchara/getty images

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If you need one more reason to consider investing in timberland — on top of its competitive, risk-adjusted returns vs. stocks and bonds, and its potential tax advantages — it’s time to start thinking about wood pellets.

These nuggets of compressed sawdust, forest debris and ailing or misshapen trees have heated U.S. homes for decades. And now, the European Union (EU) wants in.

“Wood pellets have become an important fuel in the EU, seemingly overnight, on the back of new regulations on carbon emissions and the use of renewable energy in the industry,” says Doug Donnell, an executive in U.S. Trust’s Specialty Asset Management group. “The EU views the pellets
as carbon-beneficial compared to fossil fuels.”

Europe’s hunger for biomass is “the main reason U.S. pellet exports doubled, from 1.6 million short tons in 2012 to 3.2 million short tons in 2013, making us the world’s leading pellet exporter,”1 Donnell notes.

To accommodate this growth, U.S. pellet manufacturers have been building plants across the country, although they’re mostly concentrated in the Southeast. “The region has vast forests and weather that promotes growth, which is good for sustainability,” Donnell says. “It also has deepwater ports that provide access to Atlantic shipping routes to Europe.”

If you are considering adding timberland to your portfolio, contact your U.S. Trust advisor for more information.

1 U.S. Energy Information Administration, 2014. (Latest data available.)

IMPORTANT INFORMATION

Investing involves risk. There is always the potential of losing money when you invest in securities.

Any information presented about tax considerations affecting client financial transactions or arrangements is not intended as tax advice and should not be relied upon for the purpose of avoiding any tax penalties. Neither U.S. Trust and its representatives nor its advisors provide tax, accounting or legal advice. Clients should review any planned financial transactions or arrangements that may have tax, accounting or legal implications with their personal professional advisors.

Always consult with your independent attorney, tax advisor, investment manager and insurance agent for final recommendations and before changing or implementing any financial, tax or estate planning strategy.

OTHER IMPORTANT INFORMATION

Equities Equity securities are subject to stock market fluctuations that occur in response to economic and business developments.

Energy and natural resources stocks have been volatile. They may be affected by rising interest rates and inflation, and can also be affected by factors such as natural events (for example, earthquakes or fires) and international politics.

Fixed Income Investing in fixed-income securities may involve certain risks, including the credit quality of individual is issuers, possible prepayments, market or economic developments, and yield and share price fluctuations due to changes in interest rates. When interest rates go up, bond prices generally drop, and vice versa.

Other Nonfinancial assets, such as closely held businesses, real estate, oil, gas and mineral properties, and timber, farm and ranch land, are complex in nature and involve risks, including total loss of value. Special risk considerations include natural events (for example, earthquakes or fires), complex tax considerations and lack of liquidity. Nonfinancial assets are not suitable for all investors.

If you need one more reason to consider investing in timberland — on top of its competitive, risk-adjusted returns vs. stocks and bonds, and its potential tax advantages — it’s time to start thinking about wood pellets.

These nuggets of compressed sawdust, forest debris and ailing or misshapen trees have heated U.S. homes for decades. And now, the European Union (EU) wants in.

“Wood pellets have become an important fuel in the EU, seemingly overnight, on the back of new regulations on carbon emissions and the use of renewable energy in the industry,” says Doug Donnell, an executive in U.S. Trust’s Specialty Asset Management group. “The EU views the pellets
as carbon-beneficial compared to fossil fuels.”

Europe’s hunger for biomass is “the main reason U.S. pellet exports doubled, from 1.6 million short tons in 2012 to 3.2 million short tons in 2013, making us the world’s leading pellet exporter,”1 Donnell notes.

To accommodate this growth, U.S. pellet manufacturers have been building plants across the country, although they’re mostly concentrated in the Southeast. “The region has vast forests and weather that promotes growth, which is good for sustainability,” Donnell says. “It also has deepwater ports that provide access to Atlantic shipping routes to Europe.”

If you are considering adding timberland to your portfolio, contact your U.S. Trust advisor for more information.

1 U.S. Energy Information Administration, 2014. (Latest data available.)

IMPORTANT INFORMATION

Investing involves risk. There is always the potential of losing money when you invest in securities.

Any information presented about tax considerations affecting client financial transactions or arrangements is not intended as tax advice and should not be relied upon for the purpose of avoiding any tax penalties. Neither U.S. Trust and its representatives nor its advisors provide tax, accounting or legal advice. Clients should review any planned financial transactions or arrangements that may have tax, accounting or legal implications with their personal professional advisors.

Always consult with your independent attorney, tax advisor, investment manager and insurance agent for final recommendations and before changing or implementing any financial, tax or estate planning strategy.

OTHER IMPORTANT INFORMATION

Equities Equity securities are subject to stock market fluctuations that occur in response to economic and business developments.

Energy and natural resources stocks have been volatile. They may be affected by rising interest rates and inflation, and can also be affected by factors such as natural events (for example, earthquakes or fires) and international politics.

Fixed Income Investing in fixed-income securities may involve certain risks, including the credit quality of individual is issuers, possible prepayments, market or economic developments, and yield and share price fluctuations due to changes in interest rates. When interest rates go up, bond prices generally drop, and vice versa.

Other Nonfinancial assets, such as closely held businesses, real estate, oil, gas and mineral properties, and timber, farm and ranch land, are complex in nature and involve risks, including total loss of value. Special risk considerations include natural events (for example, earthquakes or fires), complex tax considerations and lack of liquidity. Nonfinancial assets are not suitable for all investors.