ETF Talk: CUT is Slicing Through the Competition

Doug Fabian

Doug Fabian is known for his expert knowledge of ETFs, bear funds and enhanced index funds to profit in any market climate.

It’s March Madness time, and for many of us, it’s the season to watch the best college basketball players in the country run up and down the hardwood. But when it comes to investing, I’ve been observing a big rebound taking place off hardwood of a different sort. During the last three months, one exchange-traded fund (ETF) that I have noticed jumping like an All-American is Guggenheim Timber ETF (CUT). CUT has been soaring since hitting a record low last fall.

Specifically, CUT slid last year to $15.41 per share on Oct. 3 and again on Nov. 25. The price of CUT closed yesterday at $18.88 to score a gain of 22.1% since hitting last year’s low. The chart below reflects its recent run.

The Guggenheim/Beacon Global Timber Index ETF normally will invest at least 90% of its total assets in common stock, American depositary receipts (ADRs) and global depositary receipts (GDRs) that comprise the Index. All stocks in the Index are selected from a universe of global timber companies. Beacon Indexes LLC, the index provider, defines global timber companies as firms that own or lease forested land and harvest the timber from such forested land for commercial use and sale of wood-based products, including lumber, pulp or other processed or finished goods such as paper and packaging.

CUT is attractive, even as major companies shift toward “paperless” operations. Here’s a brief analysis of why I think CUT is worthy of consideration. Many timber growers have been forced to slash their prices during a weak market for new construction. Furthermore, timber growers have allowed for more trees to grow — leaving additional inventory to sell. With depressed timber prices and signs of a budding recovery in housing, the recent rise in CUT may be a precursor to improved economics for such companies.

So, what are the game changers within CUT’s portfolio holdings? The dominant sector of CUT is materials, accounting for a whopping 77.36% of its portfolio. Other key holdings and their weights are: financials, 18.30%, and consumer discretionary, 4.35%. The fund also offers international diversification, with exposure to 11 different countries.U.S.equities account for 37.93% of CUT’s portfolio, whileJapanis a distant second with 16.37%. Among all of the stocks in CUT’s holdings, the global paper and pulp company, Weyerhaeuser Co., holds the top spot, with 4.85% of the portfolio.

If you want my advice about buying and selling specific ETFs, including appropriate stop losses, please consider subscribing to my ETF Trader service. As always, I am happy to answer your questions about ETFs, so do not hesitate to email me by clicking here. You just may see your question answered in a future ETF Talk.

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