INFLATION HEDGE

There is support for timber serving as a hedge against inflation, especially with respect to unanticipated inflation. Binkley and Washburn note, in Do Forest Assets Hedge Inflation?, "that the land and growth components of timberland hedge inflation in the long run, but that due to log or stumpage price volatility, standing timber values do not, in the short term, hedge inflation."

Our findings are that over a 17-year period, from 1987 through 2005 (no properties managed in 1998), NW timberland properties managed by The Campbell Group hedged inflation, on a total return basis, more effectively than any other asset class, with the exception of 90-day Treasury securities and the Goldman Sachs Commodity Index. In conclusion, it does appear that timber hedges inflation over the longer term, although in lower inflation periods the strength of the relationship may not be as strong.

The following chart indicates the correlation of Inflation (CPI) to various investment indices. The center vertical line (0.00%) represents inflation. The NCREIF Northwest Timberland Index and The Campbell Group returns are both positively correlated to inflation along with the 90-day U.S. Treasury Bill and the Goldman Sachs Commodity Index.