Forests are a treasure, a good investment, too

Ordinary investors can now put money into timber without going into the woods

Trees don’t watch the stock market. Forests keep growing — and potentially increasing their value — even when inflation surges or the market swoons.

Big investors, like university endowments and insurance companies, have long allocated money to timberland in places like Oregon’s fir and spruce forests, Georgia’s pine plantations and Appalachia’s hardwood groves.

Until a few years ago, retail investors were mostly shut out of this market. The deals were too big, involving thousands of acres and tens of millions of dollars.

That changed over the last 15 years with the introduction of two timber-focused ETFs — the iShares Global Timber & Forestry ETF and the Guggenheim MSCI Global Timber ETF — and the evolution of big forest-products companies like Weyerhaeuser and Rayonier. Today, the big timber companies are organised as real estate investment trusts (REITs) focused on managing forestlands, having sold off many other operations.

Ordinary investors can now put money into timber without venturing into the woods. Buying shares of an ETF or an REIT won’t replicate the benefits of directly owning vast timberlands, but it does enable one to bet on timber.

And there’s an old-fashioned option: buying a little woodlot of one’s own. That’s more akin to a part-time job than a passive investment, but it can yield financial gains.

“If you look at the statistics from the US South, close to two-thirds of the timber harvest is coming from small landowners,” said Robert G Flynn, director, international timber, for RISI, a forest-products research firm.

The ETFs are more diversified than their names suggest. They do own timber companies: Both of them count Weyerhaeuser, Rayonier and Potlatch, the leading REITs, among their holdings. But they also invest in International Paper, packaging-maker WestRock and (in Guggenheim’s case) Sealed Air, which is perhaps best known for plastic Bubble Wrap.

“Investors should always buy an ETF with their eyes open and understand that some things that come with the package may not be what they had in mind,” said Todd L Rosenbluth, director of ETF and mutual fund research at CFRA, an investment research company.

In terms of returns, the ETFs have looked more like spindly saplings than strong sequoias. The Guggenheim fund failed to match the S&P 500’s return in the last three calendar years, and the iShares fund failed to do so in 2014 and 2015. Last year, the Guggenheim fund returned 5.7 per cent while the iShares fund returned 10.8 per cent, compared with 12 per cent for the S&P, including dividends.

William H Belden III, head of ETF business development for Guggenheim Investments, said his company’s timber ETF targeted a sub-sector. “Timber is a proxy for the economy and how it’s doing, especially construction and home building,” he said. Some investors want to emphasise timber in their portfolios, and a focused ETF lets them do that, Belden said.

© New York Times News Service