Investors Run To The Forests For Protection Against Stock Downturns

by Phillip Morton, Investors Offshore.com

15 December 2004

Investment in timber has been an increasingly popular and lucrative choice for both institutional and high net worth investors in recent times, although the asset class has largely escaped the attention of the world’s hedge funds, recent reports suggest.

These ‘timberland’ investment as they are known, offer the investor a number of advantages besides returns that have consistently outpaced that of equities over the last couple of decades.

Timber is uncorrelated to most conventional financial instruments such as stocks or bonds, and therefore provides a useful portfolio diversification tool as well as a good hedge against the ups and downs of the stock market.

It is also known to have a negative correlation to the real estate market, and can act as a good hedge against inflation.

For these reasons, investors, which include some of America’s largest pension and endowments funds like Calpers, Harvard and Yale, have been increasingly attracted to timber, investing through Timberland Investment Management Organisations, or TIMOs.

According to a study by the Global Institute of Sustainable Forestry at Yale University, institutional investment in timberland increased from about $1 billion in 1989 to about $14.4 billion in 2002, the most recent year covered by the study.

Moreover, between 1988 and 2003, annual returns from timberland reached 15%, according to the NAREIF Timberland Property Index, outpacing both the bond and equity markets.

Recommended