ETF Talk: Can Money Grow on Trees?

Doug Fabian

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

Conventional agricultural products include foods, fibers, fuels and raw materials, but there is an additional, unconventional segment of the industry that I want to bring to your attention: wood. Now, you may not think of wood as an agricultural product. But wood involves the growth and harvesting of organic material, so it fits the definition. An exchange-traded fund (ETF) that tracks the lumber industry is the appropriately named iShares S&P Global Timber & Forestry Index (WOOD).

Since its start in June 2008, this non-diversified fund has sought investment results that, before fees and expenses, correspond to the price and yield performance of an index which tracks the 25 largest publicly traded companies engaged in the ownership, management and supply chains of forests and timberlands. The holdings thereby may include forest products companies, timber real estate investment trusts (REITs), paper product packaging companies or agricultural product companies.

While WOOD has had a promising gain of 4.24% so far this year, the fund is capable of sizable annual gains such as in 2012, when WOOD soared 20.4%. In addition, this ETF offers a modest dividend yield of 1.17%. And with current lumber prices skyrocketing — lumber prices exceeded $450 per 1,000 board feet this past April — expect WOOD to surge in tandem with those prices as the year progresses.

WOOD concentrates its assets in four sectors that comprise the components and products of the forestry industry: basic materials, 63.62%; consumer cyclical, 17.24; real estate, 12.49; and consumer defensive, 6.65%. WOOD’s top ten individually held companies make up 55.73% of the fund’s total assets. The top five of these are: Rayonier Inc. (RYN), 7.92%; Weyerhaeuser Co. (WY), 7.86%; Plum Creek Timber Co. (PCL), 7.77%; West Fraser Timber (WFTBF.TO), 6.32%; and MONDI (MNDI.L), 4.51%.

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With the recent rebound in the housing industry (its biggest gain in seven years was last March), expect home prices to keep rising, causing timber’s value to make gains, too. With timber companies profiting, WOOD’s share price should climb as well due to that buoyed demand for lumber. And if you are invested in this ETF, you could take part in these possible profits. (Knock on wood!)

If you want my advice about buying and selling specific ETFs, including appropriate stop losses, please consider subscribing to my Successful Investing newsletter. As always, I am happy to answer any of 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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