Timber prices have been on fire over the past year more than doubling the return of the S&P500. The most direct play on lumber prices without trying to buy forests yourself is the ETF based on the Claymore Beacon Global Timber Index, which goes by the ticker (CUT) and invests in stocks that benefit from the escalating price in lumber we’ve seen recently.
Positive attributes of this Lumber Stock ETF include the following:
- Lumber prices are at the highest level since 2007 even factoring in a still-weak housing market.
- Weak dollar trend drives commodity prices higher since timber is denominated in USD.
- Recovering economy and real estate coming off a bottom is a positive for timber.
- Natural disasters are a positive for lumber. The Haiti disaster, as horrific as it is for the country’s inhabitants, will likely draw lumber demand for temporary and permanent housing for years to come.
Negative attributes of Timber ETF CUT:
- Some analysts believe the recent runup in timber prices is due to wane since housing was buoyed by government tax credits. Once these go away, they see more anemic housing growth, which is a negative for timber.
- While many cite lumber as an alternative investment class with low correlation, CUT has been relatively correlated with the S&P500 in direction, just with greater magnitude. Message? If the S&P500 corrects, it’s likely that CUT will as well.
Lumber Stock ETF Performance:
- 1 Year Performance: up 75% vs. 32% for S&P500
- Prior 5 days: up6% vs. 4% for S&P500
Disclosure: No position in CUT at the time of publication