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Take a Tour of Timber ETFs on Forest Day - ETF News And Commentary

Zacks Equity Research

Global warming is now a burning issue, raising panic alarms across the globe. The louder the drumbeats of panic are, the more human consciousness toward forestry builds up. Probably this is why a single day has been allocated since March 21, 2013, to celebrate the worth of forest reservation. Recognized as ‘international day of forests’, the day is a tribute to all types of forests and trees – big and small.

While this seems an entirely socially responsive idea, the investing world might also want to take some interest in the cause. Many companies are engaged in the timber industry. The industry has a low or negative correlation with traditional asset classes. Including this asset class in one’s portfolio provides excellent portfolio diversification resulting in low volatility of portfolio returns.

Investors might be surprised to know that timber ETFs are among the few top performers in the commodity producers’ equities ETFs space this year. An uptick in housing construction, remodeling activities and demand for real estate properties across the nation have resulted in a greater need for wood (read: Timber ETFs: The Best Housing Recovery Plays?).

Plenty of options, such as timber REITs and timber ETFs, provide exposure to timbers. ETFs are seemingly better options as its basket approach minimizes security-specific risks (read: REIT ETFs for Income and Diversification).

Thus, details on two global timber ETFs are worth ahead of the international forest day. Below, we have planted two timber ETFs that investors could consider in their portfolios on this special occasion.

iShares S&P Global Timber & Forestry Index Fund (WOOD)

This timber ETF market tracks the S&P Global Timber & Forestry Index, a benchmark that has just less than 30 securities in total. This index focuses on companies from around the world that are engaged in the ownership, management or upstream supply chain of forests and timberlands, giving it exposure to forest product firms, REITs, and paper product companies.

Despite its global focus, almost half of the total assets are in the U.S. while another 12.5% is allocated to Canadian firms. The product is also less spread out, as Plum Creek (PCL) takes the top spot at 8.03% of assets while Weyerhaeuser REIT (WY) takes the second spot at 7.87% (see all Materials ETFs here).

The annual fee comes in at just 47 basis points. WOOD has amassed about $289.7 million in assets while volume is far less as about 25,000 shares move hands every day, suggesting a relatively wide bid ask spread for this iShares product. The fund is up 2.6% in the year-to-date frame and gained 1.16% in the last five trading sessions (as of March 17, 2015).

Guggenheim Timber ETF (CUT)

This fund tracks the Beacon Global Timber Index which is a benchmark that includes roughly 30 companies. The main focus is to target firms that own or lease forested land and harvest timber for commercial use in any form – be it lumber, paper, or paper packaging.
The product puts nearly one-third of its assets in American securities while Brazilian firms make up over 16% of the fund. In terms of top holdings, the fund is moderately spread out as the top company, Smurfit Kappa Group plc, makes up 5.22% of assets.

In terms of popularity, CUT has a decent following with over $192 million in AUM. The average daily volume is moderate at 30,000 shares, suggesting that bid/ask spread should be relatively wide for this fund and total trading costs should be little higher than the 0.71% expense ratio. The fund is up 4.5% so far this year and added about 1.7% in the last five trading sessions (as of March 17, 2015).
 
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ISHARS-GL TF (WOOD): ETF Research Reports
 
GUGG-TIMBER (CUT): ETF Research Reports
 
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