Timber ETF: Smart Move in a Deflationary Environment?

Up until 100 years ago our ancestors needed timber to survive almost as much as they needed water. Keeping warm, building shelter, constructing tools all called for timber. It was necessary for survival and life itself. Indeed, plant material was (and still is) the basis of all life.

You can invest in timber by buying wooded acreage. Periodically (like every 10-15 years) a timber company will pay to harvest your trees. A much simpler and more efficient way, though, would be to buy CUT, Claymore Securities' timber ETF According to Claymore, CUT seeks investment results that track the Beacon Global Timber Index.

CUT invests at least 90% of its money in worldwide holdings of timber and wood product companies. As of September 28, no company constituted over 5% of holdings, so it is well diversified. Included are some well known companies such as Meadwestvaco (MWV), Rayonier (RYN) and Weyerhouser (WY). A little under one half of all holdings are in US (27%) or Japanese (19%) companies.

In the 1800's, indiscriminate lumbering of pine reduced much of America's, especially Michigan's, virgin pine forest to a wasteland of stumps and dry brush. This in turn sparked rampaging wildfires, both in the cities (e.g the Chicago fire of 1871) and on the cut lands. You can still see the effects of these fires in Northern Michigan.

Today, timber is harvested for packaging, paper, building materials, heating and furniture construction. Home construction and furniture making are cyclical industries while packaging is highly dependent on the economy. Many of CUT's holdings are packaging companies.

Is CUT a good investment? You can make an argument either way. On one hand timber is a real, not paper (I know, I know ... bad choice of words), asset which will always be in demand. If nothing else you can always burn it for heat. Wood heat is becoming preferred in rural areas as a replacement for expensive propane.

On the other hand, packaging demand, dependent on recession spooked consumer spending, is in a slump. Since CUT has more than doubled off its 52-week lows one must question the near term prospects, especially in a deflationary environment. CUT, going forward, will undoubtedly mirror the health of the worldwide economy.

Disclosure: No positions

Comments

[coolazz99:]

"Many of CUT's holdings are packaging companies"

That's why CUT and its iShares Twin, WOOD are bad timber plays. The bestway would be to buy the Timber REITs (PCL, RYN and PCH), albeit those are not perfect either.

Sep 29 08:55 PM

[Bob Mayo:]

CUT and WOOD are investments in a narrow industrial sector, not timber. If you want real assets, in this case board-feet of timber on acreage, you'd best go with timber REITs as mentioned by coolazz99, or some sort of private deal.

Sep 29 10:19 PM

[Johnni:]

Speaking of timber plays! Can any of you point me in the direction of any research firm that specialize in this sector?

Much appreciated!-)

Sep 30 03:30 AM

[timberbeast:]

prentissandcarlisle.com


On Sep 30 03:30 AM Johnni wrote:

> Speaking of timber plays! Can any of you point me in the direction
> of any research firm that specialize in this sector?
>
> Much appreciated!-)

Sep 30 08:23 AM

[geofisher1:]

I would also add WY as a potential convert to a REIT; POPE, a small NW limited partnership; TMWEF.PK (TWF_U.TO), BC timber with about 750k acres in Vancouver; SNOFF.PK (TRE.TO), China timber.

Sep 30 11:28 AM

[jbfiacco:]

If you want a timberland investment, this ETF isn't it. If you want to see why in detail, go here.
thetimberlandblog.blog...

Oct 03 08:23 PM