You’re supposed to shout “timberrrrr!” when a tree is falling, but what do you shout when a timber exchange traded fund (ETF) is moving higher?
Three reasons that timber ETFs are of interest to investors, according to Hard Assets Investor, are:
- Timber has, over the long-term, been a relatively effective hedge against inflation, particularly unexpected inflation.
- Timber can yield good-size returns with decent cash yields. Over the last 20 years, the same index has returned on average more than 15% annually; the S&P has returned less than 12%.
- Timber is seen as a lower-risk investment. Over the last 30 years or more, there has been little or no positive correlation between the returns generated from timberland and those from either fixed-income or equity assets. [Timber ETFs: Building a Comeback Story.]
Rob Chaney for Missoulian reports that demand in the Asian market for wood is running into increased tariffs in Siberia mixed with supply problems. In turn, the Canadian lumber industry has been landing big contracts from Chinese buyers. U.S. exports have also jumped. [Timber ETFs: 5 Ways the Demand Picture Is Shifting.]
The Chinese appetite for wood products – pallets and packing materials, pulp and paper, and their appetite for stick-built homes like we live in- is going strong and is not going to be satiated for some time.
Your options for playing timber with ETFs are Guggenheim Timber (NYSEArca: CUT), the first ETF in the space, and iShares S&P Global Timber & Forestry Idx (NASDAQ: WOOD). WOOD has a larger allocation to the United States at 49.2%, while CUT gives 24% to the United States.
Tisha Guerrero contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.