Timber is one of the most important commodities in the world and a key component of the global economy. The demand for wood is related to global economical growth and rising income in developing countries.
Although the timber industry is still a large consumer of native forests around the world, the demand for certified plantation originated wood will continue to grow due to the scarcity of the world’s nature resources, as consumers become more environmentally conscious and as government exert greater control over deforestation of natural forests.
This asset class improves the risk / return ratio of a conventional portfolio of financial assets due to it’s low correlation with other asset classes and provides diversifying effect, reducing a global portfolio overall volatility.
We should keep in mind factors that add to the asset return such as land prices appreciation and biological growth.
As trees grows in volume, they become more valuable due to the expanded potential use as a final product. The asset also works as an inflation hedge due to timber and land prices correlation to inflation in the long term.