As the housing construction industry builds up, lumber sector exchange traded funds are experiencing a decent growth spurt.
Investors interested in the lumber 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 global companies that own or lease forested land and harvest the timber for commercial use and sale of wood-based products. CUT country weights include U.S. 30.6%, Brazil 16.5%, Finland 9.9%, Japan 8.9%, Canada 7.5%, Sweden 7.4% and South Africa 7.2%. WOOD country tilts include U.S. 46.7%, Canada 7.4%, Japan 9.1%, Brazil 8.3%, Finland 7.8%, U.K. 4.7% and Ireland 4.5%.
Over the past week, CUT rose 2.5% and WOOD gained 2.3%. Year-to-date, WOOD was up 5.3% and CUT was 11.8% higher.
The timber industry is gaining momentum as the housing market rebounds and homebuilders begin ramping up construction projects. According to the Commerce Department, U.S. housing starts jumped 20.2% in April month-over-month, the highest reading since November 2007, reports Tatyana Shumsky for the Wall Street Journal.
The improved housing number provides support for the timber market as home construction makes up 40% of U.S. lumber demand. Consequently, traders and analysts believe the recent surge in housing activity could extend the rise in lumber prices.
“All those [U.S. housing] projects that would’ve gotten done over the winter but got delayed will get done, in addition to everything else that’s scheduled,” Shawn Hackett, president of Hackett Financial Advisors, a commodities brokerage and investment company, said in the WSJ article.
Moreover, China, which accounts for 20% of U.S. lumber exports, is also seeing higher demand as Beijing enacts stimulative measures to bolster growth.
China has cut rates three times over the past six months to counter act signs of slowing economic activity, along with a slowdown in the country’s property market. However, analysts and investors anticipate Chinese lumber demand to rebound in the months ahead as the interest rate cuts and lower borrowing costs help revive construction.
“We expect to see higher exports [of North American lumber to China], which means some of that supply will be taken away,” Paul Jannke, a principal with consulting firm Forest Economic Advisors LLC, said in the WSJ article.
Guggenheim Timber ETF
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.