Timber

People are getting excited by this new ETF. People have been waiting for it, and now here it is. The companies in this ETF are in the timber industry trading under the symbol CUT.

So does this new timber ETF make the cut? With an expense ratio of .65%, this ETF tracks the Clear Global Timber index, which includes companies managing or owning forested land and harvest the timber for commercial use. Components of this index have a market capitalization of at least 300 million. Individual components are capped at 4.5% of the index. Recently the index had 27 companies from 11 countries, and components include International Paper and MeadWestvaco. The United States makes up about 26% of the index, followed by Canada at 12%, Japan at 11%, and Finland and Brazil both at 9%, Sweden 9%, Australia 5.95%, South Africa 4.5%, Spain 4.5%, and Ireland 4.5%. The country weighting is based on where the trees are. It has a P/E ratio of about 14. 77.5% of the companies in this index are small and mid cap companies. This is the first ETF in the U.S. that tracks global timber companies. The fund's yield after the expense ratio is about 1%, although some of its components offer higher yields.

Some of the risks included in this fund are foreign exposure risk, risks to the actual timberland itself, risks to specific issuers such as earnings or volatile stock prices, and nondiversification risk as a single stock can affect the price of the index by a large amount.

It should be noted that these companies are proxies for timberland, not the actual timberland itself or lumber futures. However, the value of this timberland fluctuates less than that of commercial real estate. This new ETF does offer diversification to a portfolio in a number of ways, including access to foreign companies, small cap stocks, and timberland. This looks like an ETF to consider for the long term investor who seeks to diversify. 

Read the full analyst report on CUT