Bruce Vanderveen's  Instablog

Up until 100 years ago our ancestors needed timber almost as much as water to survive.  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 (see here for index information).

CUT invests at least 90% of its money in worldwide holdings of timber and wood product companies.  As of September 28, 2009, no company constituted over 5% of holdings, so your are well diversified.  Included are some well know companies such as Meadwestvaco (MWV), Rayonier (RYN) and Weyerhouser (WY).  A little under 1/2 of all holdings are in US (27%) or Japanese (19%) companies.

In the 1800's indiscriminate lumbering of pine (White Pine image at left) reduced much of America's, especially Michigan's, virgin pine to a wasteland of stumps and dry brush. This in turn sparked rampaging wildfires, both in the cities (Chicago fire of 1871) and on the cut over lands.  You can still see the effects of the 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.

You can find more about CUT at this page on Claymore's website.

Disclosure: No Positions