As an asset class, timberland offers particularly attractive features that long-term investors view as highly beneficial. It has provided competitive returns relative to its historic risk profile — and these returns compare favorably with those of many traditional asset classes, including equities, bonds and commercial real estate. Timberland also often performs differently than securities and other financial assets. This means it offers opportunities for improving overall portfolio diversification, for preserving capital and for hedging inflation.
Attractive History of Performance
Over long-holding periods, timberland has been a moderately to strongly performing investment sector, producing highly competitive returns that compare favorably with a broad range of public and private asset categories. In addition, timberland returns typically include both cash flow and asset appreciation components. These attributes mean timberland has the potential to diversify and improve the total, long-term performance of investors’ portfolios.
Learn more: Risk and Return
Portfolio Diversification Benefits
Historically, timberland investment returns have been slightly to negatively correlated with the performance of many other types of financial and real assets, including stocks, bonds, treasuries and other forms of real estate. This means including timberland in a broadly diversified portfolio has been shown to improve its overall risk and return profile.
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Capital Preservation and Inflation-Hedging Attributes
Working forests are like both factories and warehouses because over long time horizons they not only produce timber, which increases in value as it grows, they also store that value on the stump, providing investors with the ability to time when they realize cash-flow returns. Historically, these characteristics, and specifically this optionality, which enables investors to capitalize on timber supply, demand and pricing trends as they evolve, make timberland an excellent inflation hedge and capital-preservation tool.
Learn more: Capital Preservation and Inflation-Hedging Attributes