Timber Investments Cut Down Portfolio Risk
By Robert Stammers
Ever consider buying trees to enhance your investment portfolio? Over the years, timber investments are gaining interest from both institutional and retail investors for their diversification and inflation hedging characteristics, and as a sound alternative to stocks and bonds. The relatively inefficient timber market is continually evolving, creating new opportunities for investors to allocate capital for both income and appreciation.
In addition, in 2008, the management of timberland is steadily moving from manufacturers of timber-related products to timber management organizations that have the technical and market knowledge to maximize yield, increase transparency and enhance investor return. If you haven't considered timber as an investment, this article will give you some reasons why you should, as well as a few simple ways to add this asset class to your portfolio. (Alternative Assets For Average Investors explains how investments in non-financial assets can help diversify your portfolio.)
Fundamental Market Change
Since the early 1990s, a fundamental change in the ownership of commercial timberlands has occurred. Major manufacturers of timber-related products have historically owned timberlands to ensure access to the supply of trees. Increasingly, these companies are divesting their tree stock, and the associated management and farming issues, by selling it to investors and management companies with the financial and forest management knowledge to maximize production. Manufacturers can ensure access to supply by entering into supply contracts with owners. These supply contracts are usually made at pre-negotiated prices, allowing manufacturers to hedge movements and volatility in timber prices.
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