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A CUT Above the Rest
04/10/2012 10:45 am EST
This timber ETF is coming back strong as the global economic malaise weakens, writes Doug Fabian of Making Money Alert.
March brings in the season where 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 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 October 3 and again on November 25. The price of CUT has traded up more than 20% since hitting last year’s low.
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. US equities account for 37.93% of CUT’s portfolio, while Japan is a distant second with 16.37%.
Among all of the stocks in CUT’s holdings, the global paper and pulp company, Weyerhaeuser (WY), holds the top spot, with 4.85% of the portfolio.
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