Why Invest in Timberland
Timberland provides numerous benefits that distinguish it from other investments. It is a good component for a balanced portfolio and is well suited for the long-term investor desiring a stable real asset with multiple value propositions. The primary investment characteristics of timberland include:
Timberland investments provide competitive performance, meeting portfolio diversification needs while enhancing overall portfolio performance. Over the long-term, timberland returns have done well compared to other major assets.
Timberland has demonstrated low correlation with selected major asset classes, providing portfolio diversification while minimizing volatility. For the period 1987-2010, the Sharpe Ratio for timberland was 0.92 compared to that of the S&P 500 which was 0.36.
Few assets have the intrinsic and proven long-term ability to preserve capital in the face of rising consumer prices. Dr. Jack Lutz of Forest Research Group writes that “our analysis shows that U.S. timberland returns appear to lead the U.S. Consumer Price Index by a year and those returns are highly positively correlated with inflation. Timberland is an asset that will preserve capital in the face of rising consumer prices.” To read the full article, click here.
We often say that “trees don’t read the Wall Street Journal,” and even during the most difficult economic times, trees grow, compounding in both volume and value. The simple but powerful component of biological growth, which is independent of all factors typically impacting other investments, is timberland’s most distinguishing trait and underpins the investment thesis.
In spite of today’s challenging economic environment, the long-term supply and demand fundamentals of timberland bode well for the patient investor who thinks in terms of decades and not quarters. A growing U.S. and global population with a rising standard of living will continue to increase demand on a finite supply of timberland.