The Endowments Invest In Timber, Should You?

I admit to having a fascination with the asset allocation models used by large college endowments and similar pools of capital. I do not believe what these funds do can be emulated but I do believe there is much to learn from what they do. My introduction to these funds was an article from I don’t know how far back about then Harvard Management Company CEO Jack Meyer who was extolling the diversification virtues of timberland.

There are a few timber stocks around the most well known, probably, is Plum Creek Timber (NYSE: PCL). I have known about PCL since 1989 when it was still an MLP (I was a rookie broker at Lehman Brothers at the time) and I have owned the stock for clients and personally for a long time.

As much as I like the company as a long term hold and have been pleased with its relative performance during this bear I have always been willing to seek out another way into the timber space.

I first got wind of ETFs coming in this space long before the first one, the Claymore Global Timber ETF (NYSE: CUT) and had high hopes. Then later iShares came with a similar fund with ticker WOOD but is as sometimes the case the blending together of different (but related) companies has resulted in both funds correlating closer to the S&P 500 than I would have hoped for. Because of this the ETFs are off the table as far as I’m concerned.

The chart includes a couple of other examples of what is out there to research. Bergs Timber (BRG-B in Sweden) apparently has no symbol for US trading but being from Sweden should be accessible through most brokerage firms. Sweden is rich in some secondary resources including having a lot of timberland. I was not able to fund an English version of the company’s website but based on what I saw it appears to be an end to end timber company owning land, cutting trees and milling the wood. I’m sure with a little more diligence I could find an English version of what they do but the point today is simply that there are ways in to the timber space through various channels.

Also charted is SinoForest traded in Canada (SNOFF in the US on the pink sheets) which owns timberland in China. Again the company has similarities to Bergs and Plum Creek (also differences too).

For purposes of this article though these other vehicles mirrored the bear market closer than did Plum Creek which is the simplest of the bunch to find, research and follow. In the past I have done some research on Sino-Forest and a few others but never heard of Bergs until yesterday. Any of the research I have done was not enough to compel me to switch from PCL for now and maybe I never will.

Do you think PCL or any of the others offer the diversification discussed by Meyer? The answer is probably in the eye of the beholder but while I have been pleased with PCL it is not the same as buying a few thousand acres in New Zealand as HMC did when Meyer was at the helm which underscores the idea of learning from the endowments but not necessarily trying to emulate them.