- October 1, 2016; Vol. 3, Number 10

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Paul Bunyan Allocations: Safety, returns, diversification and other tall timber tales

by Mark Bell

A classic real asset worthy of consideration in portfolio construction is timber. Its “classic” status is due to both the asset’s characteristics and its general longevity as a real asset, which has sped its academic acceptance as a part of modern portfolio theory. The characteristics of the asset are well known: a hedge on inflation, a safe haven, long dated and generally relatively uncorrelated with equity markets. In turn, timber has been around for a long time, and as such there is strong academic research on its place in a portfolio. The existence of a longstanding index (as challenged as it may be), means that back testing on portfolio effects is commonplace and academics have generally supported what investment officers have known for some time, namely, that the asset helps to diversify and move portfolios up the efficient frontier. As such, we have witnessed over the past generation the amazing transformation of timber from an industrial asset to a financial asset. We

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