The team at GMO posted asset class return predictions for the next 7 years here. The link is only a PDF there was no commentary but the info is still worth thinking about.
Number one on the list for expected returns is timber. The PDF does not specify timberland but many times in the past he has talked specifically about timberland. This of course will get investors thinking about timber REITs and the timber ETFs WOOD from iShares and CUT from Guggenheim.
Any of those may be fine holdings but expecting a precise correlation to actual timberland is to expect too much. WOOD allocates about 60% to industrials and CUT allocates 74% to materials; those numbers come from the funds' webpages, but there are a lot of overlapping names as you might expect. Over the last four years (since WOOD's inception) the chart of both looks like the S&P 500 but have lagged that index.
Plum Creek Timber (PCL) is the most widely known and followed timber REIT. We used to own PCL for clients and sold it because I felt it was over-owned such that the correlation to the market would increase. After a short period in early 2008 when it looked very little like the market it has since tracked very closely to the Utility Sector SPDR (XLU). If you want to own the name because you like the fundamentals and the yield then go for it (I am not implying anything wrong with the fundies) but it has lost much of the low correlation effect it once had.
GMO thinks emerging market stocks will do well in the next seven years, thinks US large cap will have zero return and that TIPS will have negative returns. There are plus or minus numbers tied to each asset class mentioned (there are others besides the ones I mentioned).
Accessing actual attributes associated with timberland even with PCL is difficult because the share prices are subject to the various emotions that all stocks are subject to. This is similar to farmland stocks. Adecoagro (AGRO) and Cresud (CRESY) have lagged badly behind the S&P 500 for the last couple of years and although they haven't looked much like the stock market, investors haven't really benefited from theme.
There is no reason to think that access to these spaces can't evolve but for now the stocks don't offer as much diversification as the concepts.
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4 comments:
Roger;
I live in the Lake Superior region where wood is a big business which isn't doing well these days. Hardwood is down but will revive as construction comes back,but pulpwood is going to continue to decline as electronic documents replace paper. Biomass projects are on hold because of cheap gas. On the plus side parity with the Loonie has made Canadian wood uncompetitive. Wood related jobs in Northern Minnesota have declined by about 40% since pre-crisis days.
I have looked at Plum Creek from time to time, and in fact have done due diligence on some of their lands with a shotgun in hand during grouse season. The fundamentals of the wood business have kept me from pulling the trigger on an investment in Plum Creek, and I am puzzled whenever a recommendation appears touting timberlands as an outperforming asset class. It seems that the success of the Ivy endowments with timber decades ago still gives this asset class sex appeal. From where I sit, I would say buyer beware.
historically prices for lumber and timberland have behaved differently.
Perhaps Grantham can't see the forest due to the trees.Are trees a crowd? Or is the 7:45 comment applying a knock on wood?
My Rocky and Bullwinkle "Aesop Fable" moment.
T
Roger as asset classes go lot of pundits are warning about interest rates rising and warning to get out of bonds, or change duration mix. Have you changed your asset holdings based on these warnings
My feeling is unless economy improves interest rates are unlikely to increase significantly.
As always Thanks!
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