Realistic Growth For Timber, Steel and Natural Gas ETFs

Here's what's not realistic: U.S. based- financial companies that need to raise capital, and that may be struggling to do so, will grow their earnings substantially in a tepid economic macro-environment.

Granted, irrational fear did lead to promising opportunities for snapping up financials. But the party is pretty much over here. Just as the systemic risk of imminent financial collapse is behind us, the opportunity to make gobs of dough on banks is also behind us.

Keep in mind, extreme levels of leverage that helped financial firms score record profits is not permissible going forward. Lending will be underwritten with stricter standards. What's more, commercial property foreclosures and credit card defaults will haunt the banks as well.

Yet there is a realistic growth story. Specifically, we can expect global infrastructure needs for everything from wood to steel to natural gas to pick up. In fact, the top global corporations engaged in these resources sub-segments are topping the 1-month leader-board (4/9/09-5/8/09) as I type!

Providing Goods and Services in the Natural Resources Arena (4/9/09-5/8/09)
				5/8/2009		1-Month
Claymore Global Timber Fund (CUT)				7.34%		42.67%
Market Vectors Steel (SLX)				3.52%		36.09%
First Trust Natural Gas (FCG)				6.87%		33.87%

The Claymore Global Timber Fund (CUT) tracks the performance of 27 companies in the Clear Global Timber Index, 70% of which are based outside the United States. Firms include those that own or lease forested land, harvest timber for commercial purpose and/or sell wood-based products.

CUT has actually jumped about 100% off of its March lows, and still yields approximately 4% annually. Moreover, it recently eclipsed its long-term 200-day trendline.

Market Vectors Steel (SLX) tracks the price and yield of the NYSE Arca Steel Index, giving investors exposure to global companies involved in the operation of manufacturing mills, fabrication of steel products and/or the extraction of iron ore.

SLX is geographically diverse, with 60% non-U.S. exposure (25% Europe, 25% South America, 10% Asia). The exchange-traded fund also has a compelling fundamental picture such that the median price-to-book is below 1. It too has pushed above its 200-day moving average.

Finally, unlike the underlying commodity price of natural gas, First Trust Natural Gas (FCG) tracks an equal-weighted index of corporations that derive significant revenue from natural gas production and exploration.

While natural gas prices themselves continued to plummet throughout March and April (See "Natural Gas ETFs May Rocket"), FCG began an impressive recovery in early March. In fact, it has catapulted nearly 75% off of 52-week lows. And that's not dissimilar from many of the other resources ETFs.

Comments

[Tampa DDS:]

Nice report. I hope we see CUT grow steadily for several years.

May 10 09:37 AM

[donzelion:]

U.S. timber was one of the better performing asset classes in the stagflation 70s - even without a housing bubble driving prices up enormously. The financials underpinning the industry have changed, but trees still grow about the same as they always do, producing lovely, renewable products - and a dividend that sure beats a CD right now. I'm in for the smoothing out factor, though I'd rather pick out a few companies with best practices (bear in mind, the easy money is from clear-cutting Indonesian and other South Asian woods - hardly the most responsible investment, or mode of practice).

I like nat gas as well. Can't say much for steel - I can't see major industrial growth in the intermediate future.

May 10 04:24 PM

[zenman:]

Re: steel. I read that the world needs 53 trillion in infrastructure investment. that bodes well for cement and steel.

why do you use 200 mda, the 50 mda would have gotten you in a lot sooner?

May 11 06:53 AM