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Although timberland is becoming a more popular investment alternative with institutional investors, it is not yet a fully accepted asset class. One reason is because until recently no widely available property-based benchmarks existed to measure the investment performance of timberland, which hampered asset allocation decisions. A second reason is because it was not clear whether timberland returns are persistent over varying time periods. This study used a property-based timberland investment performance benchmark to conduct asset allocations for rolling time periods ranging from 5 to 15 years, between 1981 and 1996. The objectives were to determine whether 1) a positive timberland allocation was included in optimized portfolios and the percentage of the total portfolio allocated to timberland when it entered the solution; and 2) timberland increased returns over portfolios without timberland, and the degree of return enhancement at each level of risk. The results show that in all periods and at most risk levels timberland increased overall returns, often substantially. Timberland's return and risk characteristics were also such that it maintained a persistent allocation in optimized portfolios over all periods. The study suggests that investors who have not considered timberland may find it a desirable addition to institutional portfolios.
Fiscal Year: fy98 ·
Problem Area: pa98-1 ·
Source: extra
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Citation:
Caulfield, J. P. 1998. Timberland in institutional portfolios and the question of persistence. Forest Products Journal 48:23-28. Want more? Send an email to dwear@fs.fed.us
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Forest Economics and Policy |
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USDA Forest Service Southern Research Station |