CFA Level I · CFA Level I Exam · Natural Resources
An investor wants exposure to timberland for portfolio diversification. Compared with most commodity futures, a key feature of timberland as an investment is that the trees most likely:
Timberland's distinguishing feature is that trees keep growing biologically, so owners can defer harvest when prices are low and gain additional volume and value over time. This harvest flexibility is not available with most commodity futures or with mined resources.
- Amust be harvested at a fixed date set by the exchange
- Bcan continue to grow biologically while harvest is deferred, adding valueCorrect
- Close their value when prices rise because they are consumed
Explanation
Timber has a biological growth component: trees add volume and often quality each year, and the owner can delay harvesting when prices are weak. Harvest dates are not set by an exchange, and price rises do not destroy value.
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