This post includes an excerpt from Forisk’s upcoming white paper “Timberland 2020: From High Hopes to Viral Mopes and Back Again.”
The current pandemic and market volatility give us the chance to revisit the thesis and long-term benefits of owning and retaining timberland investments as part of a diversified portfolio. Opportunities to participate in timber evolved over the past 50 years as ownership of investment-grade timberlands in the U.S. shifted from the forest products industry to forest management specialists such as TIMOs and public real estate investment trusts (timber REITs).* While some acreage went to developers or small landowners, most was acquired by institutional investors attracted by the cash flows, diversification and inflation-hedging characteristics.
Over the long-term, privately-owned timberlands continue to exhibit strong risk-adjusted returns relative to assets such as stocks and bonds (Figure). Timberland investments benefit from the fact that they comprise a diversified bundle of businesses. A given forest can serve multiple, often countercyclical, markets including hardwood and softwood, grade and pulpwood, along with non-timber markets such as recreation, minerals and cell towers.
Performance of Private Timberlands Relative to Stocks and Bonds
Over the past thirty years, a preliminary survey of the data indicates timberland satisfied its mandate. An investment of $100 in the S&P 500 in Q1 1990 would have appreciated to $914.20 by the end of Q1 2020, not including dividends. The same $100 invested in private timberlands would have appreciated to $1,426.22 over the same time frame.
*Mendell, B.C. 2016. From Cigar Tax to Timberland Trusts: A Short History of Timber REITs and TIMOs, Forest History Today, Spring/Fall 2016: 32-36.