That said, timber REIT share prices got buzzsawed in 2008, making them highly correlated with the S&P 500. And investors who bailed on these REITs during that period locked in that correlation on the downside.
Meanwhile, Mendell says, publicly-traded timber REITs and privately-held timber assets have converged during the past 11 years. This suggests timber is more correlated to traditional asset classes than people think.
The other part of the story, though, is the extraordinary flexibility that owning timber offers. Case in point: the mortgage meltdown.
When housing starts plummeted 72% between 2005 and 2010, Mendell says, timber REITs shifted the harvest from the higher-value saw timber (the older logs that are used for manufacturing lumber and building houses) to the pulp and pulpwood used to make paper and paperboard, where prices remained stable. Overall, though, they thinned and deferred harvests.
The result? "Unlike capacity rationalization decisions associated with manufacturing, which reduce the capacity to produce volume in the future," Mendell says, "forest harvests effectively increase capacity to produce in the future as trees continue to grow."
Timber REITs are unique animals and they perhaps can be considered alternative investments to some extent because their balance sheets--i.e. trees--keep growing even when the economy tanks. Operationally speaking, this makes them less risky than many publicly-traded companies.
Ultimately, the debate about whether or not timber REITs are an alternative investment is secondary to whether or not these vehicles merit a place in one's portfolio. Based on their track record during the past 11 years, plus their dividends, they're worth a look.
Ellie Winninghoff can be contacted at: ellie.winninghoff (at) gmail (dot) com.