Patience truly is a virtue for timber investors.

So where to invest? George Nichols, who authored the original IndexUniverse article, does a great job outlining the pros and cons of current "timber" investments in an article located here. I put quotes around the word timber because, as Nichols points out, many proclaimed timber investments are not what they seem. Two popular timber ETFs are the Claymore/Clear Global Timber Index ETF (CUT) and the iShares S&P Global Timber & Forestry Index Fund ETF (WOOD). If anything, they have easy to remember tickers. The problem with these ETFs is that they do not provide investors with direct access to the timber asset class - which has all the return, correlation, and volatility benefits mentioned earlier. Each is broadly focused on forestry/paper stocks, such as International Paper (IP). Instead of investing in an asset class, investors end up investing in a sector, one of which ironically may suffer with higher raw material timber costs. According to Nichols, WOOD appears to be a little better than CUT for correlation to timber, primarily due to its REIT exposure (more below). Nonetheless, it is also still not perfect, or really that good as a timber pure-play.

An alternative to ETFs are timber REITs. Nichols mentions three in his article: Plum Creek Timber (PCL), Rayonier (RYN), and Potlatch (PCH). Plum Creek has 8 million acres of forests, making it the country's largest non-government owner of timberland. Unfortunately, like the ETFs, the REITs are also not pure-play timber companies since each has manufacturing operations, giving significant exposure to sawmills and paper mills. Of the three mentioned, Plum Creek Timber has the highest timber exposure (71%), yet still suffers a low correlation to timber. Nonetheless, it is expected that correlations will increase in the future as firms continue to divest manufacturing assets, giving the funds a higher pure-play timber focus. Potlatch recently announced that it was spinning-off its pulp-based businesses.

So what to do? Nichols believes that in theory timber is an attractive asset class that should be considered as part of a portfolio. Unfortunately, in practice, getting some timber in your portfolio is more easily said than done. Of the group, PCL is the most attractive, even if not a perfect proxy for timber. Waiting for more divestment of manufacturing operations from each of the REITs may be necessary to fully see the benefits that timber investment offers. Who ever thought wood could be this profitable, and for that matter, so difficult to buy?

(Note: For those interested in more details beyond this summary, please refer to both articles written by Nichols. Each is well written and researched, providing both the pros and cons to timber investment, along with data to support his conclusions.)