After years of slow growth, timber is back as an attractive long-term investment, and this exchange traded fund is a great way to get involved, writes Nick Vardy of The Alpha Investor Letter.

Timber is a longtime favorite of some of the top investors in the world. Value investing legend Jeremy Grantham believes that timberland is the single best long-term investment. And last year, the Harvard Endowment Fund had about a 10% weighting in timber, then increased its weighting for the coming year.

The best way to invest in timber is through the S&P Global Timber & Forestry Index Fund (WOOD), an exchange traded fund.

Taking a long-term view as they do, it is easy to see why Grantham and Harvard are so enthusiastic about timber. After all, trees grow through bear markets. Trees grow through bull markets. Trees simply grow through everything.

The price of timber has grown at a remarkably consistent rate throughout the years, increasing in price by an average of 6% every year for the past century, including during two World Wars, the rise and fall of the Soviet Union, and 9/11.

Between 1971 and 2010, timber boasted average annual returns of over 14%. In 2008, while the S&P 500 fell 38%, the value of timberland rose 9.5%. If there is a way for you to protect yourself against a crash in financial markets, timber is it.

Timber offers higher returns than the overall stock market. Timber also offers substantial downside protection, and has a history of performing well during inflationary times. That’s a hard combination to beat.

Global timber supply is falling. Thanks to a combination of urban development, agriculture, and illegal logging, 10% of the world’s forests have disappeared in the last 25 years. At the same time, there has been a surge of demand for timber from across the globe—primarily from Asia, and specifically Japan, South Korea, and China.

The most straightforward way you can invest in managed timberlands is by buying an exchange traded fund such as WOOD, which tracks the performance of forestry and timber firms worldwide.

A big chunk of WOOD—44.52%—is invested in companies based in the United States. But an even bigger portion is invested in global stocks. Japan accounts for 9.29% of the ETF, while there are large allocations to Canada (9.28%), Brazil (8.78%), Finland (7.63%), and Singapore (7.47%).

WOOD’s three top holdings—together accounting for 22.88% of its portfolio—are US-based timber companies that you can invest in individually, as well: Weyerhaeuser (WY), Rayonier (RYN), and Plum Creek Timber (PCL).

From a technical perspective, S&P Global Timber & Forestry Index Fund has broken out recently to the upside and is now in a solid uptrend. Don’t worry...there is plenty of upside left.

Subscribe to The Alpha Investor Letter here...

Related Reading:

Bullish on America? This Is Your ETF
This ETF Has a Solid Foundation
The Risks and Rewards of ETNs

Related Articles
  1. Economics

    The Biggest Oil Producers in Latin America

    Find out which countries produce the most oil in Latin America, and learn about some of the biggest oil companies operating in each country.
  2. Professionals

    Are ETFs a Good Fit for 401(k) Plans?

    The popularity of ETFs among investors and advisors continues to grow. But are they a good fit for 401(k) plans?
  3. Stock Analysis

    Will WYNN Continue to Rally?

    Wynn Resorts has experienced a rally recently. Will it remain a good bet?
  4. Stock Analysis

    Don't Be Fooled by the Market's Recent Rally

    The bulls won for a bit in early October, but will bears have the last laugh?
  5. Stock Analysis

    Will Twitter's Stock Find its Wings Soon?

    Twitter is an enigma to many investors, but its story is pretty straightforward.
  6. Mutual Funds & ETFs

    The Top Vanguard Emerging Market ETF

    Learn why growth investors should consider investing in VWO's portfolio of emerging market stocks.
  7. Stock Analysis

    8 Solid Utility Stocks for a Bear Market

    If you're seeking modest appreciation, generous dividend payments and resiliency, consider these eight utility stocks.
  8. Investing Basics

    How to Pick the Best Muni Bonds and Muni Bond ETFs

    Municipal bonds are a good addition to a diversified portfolio as long as you choose correctly based on population and local economic trends.
  9. Stock Analysis

    Why Phillips 66 (PSX) is a Solid Long-Term Bet

    Here's why Phillips 66 will likely remain one of the world’s largest and most profitable companies for a long time to come.
  10. Mutual Funds & ETFs

    Top 3 Emerging Markets Bond Mutual Funds

    Discover detailed analysis of the top three mutual funds offering exposure to the emerging markets bonds, and learn about the suitability of these funds.
  1. Can mutual funds invest in IPOs?

    Mutual funds can invest in initial public offerings (IPOS). However, most mutual funds have bylaws that prevent them from ... Read Full Answer >>
  2. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  3. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  4. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  5. Does index trading increase market vulnerability?

    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>
  6. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!