Andrew Corn, in his own words, is known as “a bleeding heart, tree-hugging person in real life.” So, the founder and CEO of Clear Asset Management was a bit taken aback when a friend of his daughter’s called and, in a dramatic fashion that is the hallmark of 14-year-olds everywhere, asked him how he could possibly be a part of something called “CUT.”
That is, the Claymore/Clear Global Timber (CUT) ETF. Its underlying index is made up of 27 companies from 11 countries that produce wood and paper products. And it has little to do with lumber and its price.
“The thing I have found is that people look at what we’re doing, and they wanted to take our information and compare it to the spot price of lumber in the Midwest. Why not compare the prices to a banana? There is that little correlation to lumber prices,” Corn says.
The index has a unique construction – the stocks that comprise it were chosen from a universe of all the global timber companies and the geographic distribution of trees was taken into consideration. The more timberland a country has, the greater its weighting in the index.
No single company has a weighting greater than 4.5%. The companies are arranged in two tiers: tier 1 consists of companies whose business it is to own or manage timber. Tier 2 consists of companies that grow trees as a resource for raw materials in what they make, such as packaging.
There is some debate as to whether planting a tree counts as a carbon offset (meaning, does it balance out your use of heating oil at home, for example?). Skeptics say that trees do lock up carbon when they're alive, but once they're cut, it's released again, according to an article last year in the Guardian. The World Wildlife Fund, Greenpeace and Friends of the Earth do not support forestry projects as a means of offsetting emissions, MoneyWeek has reported. Do with that what you will, but caring about the environment is never a bad thing, though.
The ETF isn’t just about chopping down trees, he says. It’s about timberland and the companies that own it. They replenish what they take – cut 10 acres, plant 10 acres. “There’s good economic sense – if I don’t replant what I cut, then I won’t have any business.”
CUT is banking on a growing demand for timber in the coming decades. Corn cites China
and its phenomenal population growth alone – more people would naturally equal a demand for more paper. “Everyone’s going to need furniture, paper, packaging. In China, they’re building 20 cities up to the size of London.”
And as the world goes ever greener, wood will become in demand if only because it’s one of the best biofuels around – a renewable source of energy that creates little polluting waste.
Whatever your motives, be it that you’re a good, old-fashioned tree-hugger or you just want to get in on a growing trend, CUT may have a place in your portfolio.