Timber: Claymore Launches the First Global Timber ETF (CUT)

The launch was on Friday, November 9th. According to the press release:

LISLE, Ill.–(BUSINESS WIRE)–Claymore Securities, Inc, today announced the launch of the Claymore/Clear Global Timber Index ETF (AMEX: CUTNews) on the American Stock Exchange. This is the first U.S.-listed global timber ETF to offer investors exposure to the timber asset class and is Claymores 35th ETF to-date.

Timber has had a historically low correlation to traditional asset classes, which provides investors a unique diversification tool that may help reduce a portfolios overall volatility, said Christian Magoon, Senior Managing Director at Claymore Securities, and head of the firms ETF Group. Historically timber has been an asset class available only to institutional investors due to high capital costs. Today, with the launch of the Claymore/Clear Global Timber Index ETF, investors have an investment vehicle that seeks to provide efficient access to the global timber market.

Claymore/Clear Global Timber Index ETF (AMEX: CUTNews) seeks investment results that correspond generally to the performance, before the Fund’s fees and expenses, of an equity index called the Clear Global Timber Index (the Index). Stocks in the Index are selected from the universe of global timber companies and defined by Clear Indexes LLC, the index provider, as firms who 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.

My original post on investing in Timber as an asset class remains very popular on this blog, and walks through the reasons why I personally believe that it is an excellent option for diversification. That being said, owning timber as a small investor is still an evolving game, with the best proxies to date being public timber REITs and Partnerships, like Plum Creek Lumber (PCL), Rayonier (RYN), and Pope Resources (POPEZ).

I like the idea of an ETF that is more of a pure play on timber itself, but I think it would be better structured as literally owning timber like the large private partnerships, and not just an index of public companies. We have seen Gold ETFs that own the mining companies vs. the metal itself, and there is no question that the ones that own the metal do a better job of reflecting the actual financial properties of the asset class.

Seeking Alpha has an article on the new ETF, just up:

CUT tracks the Clear Global Timber Index, which includes companies that own or manage forested land and harvest the timber from it for the commercial use and sale of wood-based products such as lumber, pulp and paper products. Components must have market capitalizations of at least $300 million, and companies that do not own or manage forested land and harvest trees are excluded from the index. Individual component weights are capped at 4.5% of the index.

As of September 30, the index has 27 components from 11 countries; its top components include International Paper, Stora-Enso Oyj, Weyerhauser Corp. and MeadWestVaco Corp. The United States represents more than one-fifth of the index at 26.39%, followed by Canada at 12.25%, Japan at 11.50%, Finland at 9.00% and Brazil at 9.00%. It has a PE ratio of 14.3.

The Clear Global Timber Index has outperformed the Dow Jones World Forestry and Paper Products Index in each of the past five calendar years and is up 16.38% year-to-date through September 30, versus a 6.88% increase for the other index.

CUT has an expense ratio of 0.65%. You can read the prospectus here.

I have been debating whether to expand my exposure to PCL, or to diversify with RYN and POPEZ. This ETF offers a third option, which would be to try to get global timber exposure through this ETF.

Something tells me that we’ll see better approaches to representing timber as an asset class in the next year or two, as the demand for real assets that perform well in inflationary environments grows. So I’m not sure I’m ready to jump to invest in CUT… yet.

Update (11/11/2007): Some great detailed analysis on the breakdown of the diversification benefits of CUT on Seeking Alpha today.  Check it out.