Jeremy Grantham, famous for co-founding the Grantham Mayo Van Otterloo (GMO), has made a series of forecasts that investors may want to pay attention to. Grantham has become a household investing name with his uncanny predictions of numerous asset bubbles as well as his general knowledge of the financial world. According to Mr. Grantham, the next seven years will see timber outperform all other asset classes. The prediction laid out a 6.5% annualized return for this commodity, while other asset classes lagged behind [for more timber news and analysis subscribe to our free newsletter].
Though Grantham sees emerging market stocks and U.S. large caps putting up decent numbers, timber is predicted to outdo all of its competition, with the bond space performing particularly poorly. It should be noted that his model factors in mean inflation of 2.2%, a figure that may be far too low by the standards of many. Should inflation be higher, timber has a strong chance to outperform the numbers put forth by Grantham, as the asset has long been a strong hedge against inflation.
The price of timber has risen by an average of 5% for the past century, and those gains include strong performances during some of the worst markets in U.S. history. “During America’s last major inflationary period – from 1973 to 1981, when inflation averaged 9.2% – timberland values increased by an average of 22% per year” writes Larry D. Spears. Since the beginning of the 20th century timber has outpaced the S&P 500 and has risen by approximately 15% each year since 1987 (save one bad year during the U.S. housing crash) [see also The Beginner’s Guide to Timber Investment Funds: How to Invest in Timber].
For those looking to make a play on Grantham’s advice, we outline several options below:
- S&P Global Timber & Forestry Index Fund (WOOD): This ETF measures the performance of firms all over the world that have their hands in the forestry and timber business. The fund has about $170 million in assets and trades hands just under 20,000 times each day.
- Weyerhaeuser Co (WY): A stock that has been on a tear this year, gaining more than 50%, WY is a forestry company that has its hands in ever facet of the timber industry.
- Plum Creek Timber (PLC): A coveted timber stock with a market cap of just over $7 billion. This REIT is one of the largest private landowners in the U.S. and its stock maintains an attractive dividend of 3.8%.
Disclosure: No positions at time of writing.