Cold winter conditions put a freeze on the lumber industry, with prices at near seven-month lows, but timber exchange traded funds could make the cut during the spring thaw.
“Last year everyone was irrationally exuberant about the spring and about how fast the housing recovery would take hold,” Steven Chercover, an analyst with D.A. Davidson, said in a Wall Street Journal article. “This year, we were optimistic, but had the worst winter in decades” in some areas of the Midwest and East Coast.
The heavy snow impeded transportation and construction. Even with the snow thawing out, a lot of lumber has been left sitting in mills and warehouses due to a large backlog.
“Whenever the perception is out there that there’s lumber piled up like there is now, the psychology feeds into a real bearish market,” Paul Harder, a lumber trader with Dakeryn Industries, said in the article.
CME lumber futures fell as low as $323.5 per 1,000 board feet last week, the lowest since September. Lumber prices, though, gained Monday, trading around $331.5.
Nevertheless, some analysts remain confident that the lumber market will recover. Daryl Swetlishoff, head of research at Raymond James, points to an end to a Canadian trucker strike, which could free up transportation of lumber, and expects North America to take in the stockpiles. [Two ETFs for Rising Lumber Prices]
“Wood is flying again, [and] demand should be healthy going forward,” Swetlishoff said in the article.
Investors interested in the wood market can gain exposure through ETFs that track global timber-related companies, such as the Guggenheim Timber ETF (CUT) and iShares Global Timber & Forestry ETF (WOOD) . Both funds include exposure to companies that own or lease forested land and harvest the timber for commercial use and sale of wood-based products.
CUT allocates 30.7% to the U.S. and 11.9% to Canadian companies, including a 8.4% weight in Smurfit Kappa Group (SMFTF), 6.1% in West Fraser Timber (WFTBF) and 5.5% in Svenska Cellulosa. WOOD has a 48.6% weight toward the U.S. and 14.0% toward Canada, including a 8.3% allocation in Plum Creek Timber (PCL), 8.1% in Rayonier (RYN) and 7.8% in Weyerhaeuser (WY). [Timber ETFs on the Move Higher]
The Guggenheim ETF is down 5.0% year-to-date but has gained 8.4% over the past year. The iShares fund is down 5.3% this year, but it is still up 14.6% over the past year.
For more information on the lumber industry, visit our timber category.
Max Chen 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.