The enduring case for timberland

Enduring principles support the fundamental case for timberland investing

1. Principle 1 | Strong market fundamentals: Investing in timberland is a fundamental way to benefit from growing worldwide demand for wood. As populations expand and become wealthier, their large and growing wood demand provides attractive opportunities for timberland investors in key geographies.
2. Principle 2 | Potential for attractive returns: Since inception, NCREIF timberland returns appear highly competitive with traditional asset classes.
3. Principle 3 | Lack of correlation with other asset classes: Over the past several decades, U.S. timberland returns have exhibited a lack of correlation with traditional asset classes.
4. Principle 4 | A hedge against inflation: Timberland continues to provide investors with a reliable hedge against inflation.

Timberland — and the wood fiber it generates — is vital to the global economy, providing a renewable resource for housing, furniture, packaging, tissue, heat, energy and communications. For many decades, timberland was owned primarily by governments, wealthy families and corporate operators. But that all began to change about 50 years ago, creating a timberland investment landscape that continues to evolve.
Institutional portfolios may include a mix of traditional and alternative assets. Pensions & Investments (2018) reports the typical defined benefit allocation to be about 50% equity, 25% fixed income and 25% alternatives. The allocation to alternatives may include private equity, real estate, farmland and/or timberland.

The case for investing in timberland remains compelling despite the market’s evolution:

• Demand for wood and related products is likely to increase with global economic growth, particularly in emerging markets.
• Although returns have moderated in the past 10 years with the slow housing recovery, timberland has continued to outperform U.S. equities on a risk-adjusted basis due to its low volatility.
• The asset class has provided powerful diversification benefits based on consistently low or negative correlations with traditional asset classes.
• Timberland is likely to remain a reliable hedge against inflation.

Nuveen and GreenWood Resources employ three key strategies to increase timber returns:

1. Global diversification for exposure to faster-growing markets
2. Impact investing to maximize timberland’s potential environmental benefits
3. Return enhancers to provide potential for higher alpha