Timber As A Liquid Investment

Financial advisors have been searching for years for a way to invest in timberland investments. Timberland has been used by large university endowments and retirement plans for years.  In the past, these investments have usually only been available in $1,000,000 increments to investors.  Now advisors may have an answer to this perplexing problem.

In November, Claymore Funds launched a new Exchange-Traded Fund offering named Claymore/Clear Global Timber (CUT), listed on the American Stock Exchange.  The fund tracks the Clear Global Timber Index, which includes 27 companies based around the world that produce wood and paper products.

The companies are based in 11 countries. The index weights the U.S. at 26.4%, followed by Canada at 12.3%, Japan 11.5%, Finland 9% and Brazil 9%.

The top three holdings are Votorantim Celulose e Papel of Brazil, Grupo Empresarial of Spain and MeadWestvaco of Virginia.

Other U.S. companies in the index include Deltic Timber, International Paper, Plum Creek Timber and Potlatch.

Each stock accounts for 1% to 5% of the fund’s assets. 

Historically, the Clear Global Timber Index has had 10-year rolling correlations of .68 with the S&P 500.  While there are some diversification benefits, Morningstar states that a .70 correlation is still considered high.  However, when shorter timeframes such as three-year periods are considered, correlations will be higher or lower.  As we obtain new data, we will make it available. 

In the interim, while timberland is a unique alternative investment asset class and will probably offer very good returns over the long-run similar to the stock market, if not better, in the short run it is plagued by most investors’ perceptions that it is tied to housing.  While this perception is true to a degree, the large majority of wood products are used for items other than housing.  With a slowdown in housing occurring not only in the U.S. but also in countries such as Ireland, Spain and several other venues, it appears that this new investment vehicle may be in for tough sledding for awhile.  At the present time we prefer timberland investments in private partnerships.  The negative of using partnerships is that they require extremely large investments (usually $250,000.00 to $1,000,000.00) and investors are required to be qualified ($5,000,000.00 net worth).