Timber ETFs: The Best Housing Recovery Plays?

Housing has been an extremely good play for most investors in the past year or so. However, the segment ran into a rough patch earlier this year, as most housing stocks stumbled.

This was largely due to worries of continuing demand with marginally higher rates, as well as some profit taking. After all, many top housing ETFs—like ( XHB - ETF report ) and ( ITB - ETF report ) —added more than 50% in 2012, suggesting to some that the space was overbought.

Recent data that was released in the market suggested otherwise though, as both existing home sales and new home sales posted solid figures. While both missed the consensus, home price increases were quite robust and inventory levels remained below five months, suggesting a low supply (also read Homebuilder ETFs Surging Again).

This caused many investors to pile back into the aforementioned homebuilder ETFs, but is this really the best option going forward? There is actually another key segment which could be a better option for those who want a housing recovery play, timber ETFs.

Timber ETFs in Focus

Currently there are two timber ETFs on the market, Guggenheim Timber ETF ( CUT ) , and the iShares S&P Global Timber & Forestry Index Fund ( WOOD ) . While the two have a few differences—such as expense ratios and U.S. holdings—both provide great exposure to the broad timber industry (see Timber ETFs Head-to-Head).

This segment is obviously a key beneficiary of the housing uptrend, as timber and related products are vital for new houses, and a variety of other housing related products like flooring. However, CUT and WOOD haven’t been as bid up over the past 12 months, so they could be better options going forward.

Additionally, they have shown some degree of leadership after the latest round of housing data, and indeed, in 2013 overallas well. This suggests that these two could be the better ways to play housing in the months ahead, and that it is timber’s turn to ride the recovery wave (read 4 Best ETF Strategies for 2013).

This is especially true when investors consider the Zacks Industry Rank for the space. At time of writing, the building and wood products segment is the top Ranked industry—bar none—that we are tracking, meaning that no industry has a better estimate revisions profile than timber right now.

Timber ETF highlights

For more on timber ETFs and how they could be interesting plays in today’s economic environment, watch our short video below on the subject:

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