The Downside of Investment Products

There was a post up yesterday at Seeking Alpha comparing and contrasting the Claymore/Clear Global Timber Index ETF (NYSE: CUT) and the iShares S&P Global Timber & Forestry Index Fund (NYSE: WOOD). Many investors are enamored of owning timberland in a portfolio because of comments in the past by former Harvard Management Company CEO Jack Meyer and legendary hedge fund manager Julian Robertson. Count me in the enamored camp.

More interesting than the article (apologies to the author) was a comment by a reader asking about some of the more esoteric trusts traded on markets around the world but are mostly available in the US on the pinksheets. The reader specifically mentioned one fund called Cambium Global Timberland which trades in London under ticker TREE; I was not able to find a US symbol for this one.

There are a couple of these that trade in Canada including Sino Forest (OTCPK: SNOFF) and Timberwest (OTCPK: TMWEF). There are more in Canada and a couple in Australia. As the chart shows neither Sino nor Timberwest offered much zigzag versus equities when things were really hitting the fan for US equities. Although not included on the chart Cambium had a very slow and steady ride to a 40% decline. These things tend to pay big dividends so it is possible that the results are skewed a little by the ex-dividend reductions but still not much protection from the bear market.

The funds could be great investment choices or not (I don’t know) but it is important to realize that there are a lot of investment products out there and more will be coming but that does not mean they should be bought. A lot of them from all sorts of different parts of the investment world and a lot of them look similar to what you see charted—that is large declines.

Owning one of these that turns out not to go well is one thing, but the yields and the parts of the world they capture are interesting and it is easy to own too many thinking you’re diversified but really you are not. Other products include trusts tied to hydroelectricity and ice (as in what you buy bags of for a party). I would say no more than just one of these in a moderate weighting even if they seem to own completely different things.

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