Lumber ETFs provide investors an easy way to gain exposure to the timberland and lumber industries. Timberland can help diversify your portfolio by providing a hedge against inflation. Meanwhile, lumber benefits from economic growth and the housing sector.
Investors have two ways to play a potential rise in lumber prices and timberland values. They can buy lumber stocks or a timber-focused exchange-traded fund (ETF). Here's a closer look at the two ETFs focused on the lumber industry: the iShares Global Timber & Forestry ETF (WOOD 0.24%) and the Invesco MSCI Global Timber ETF (CUT 0.56%).
WOOD ETF
1. iShares Global Timber & Forestry ETF
The iShares Global Timber & Forestry ETF provides investors with broad exposure to companies that produce forest products, agricultural products, and paper and packaging products. The fund aims to track the S&P Global Timber & Forestry Index. As of mid-2024, it managed less than $200 million of net assets.
The iShares ETF's top holdings include several of the largest timberland REITs, as well as global timber companies. This ETF had 34 stock holdings in mid-2024. The five largest by value were:
- Weyerhaeuser (WY 0.51%): 7.9% of the fund's value
- Svenska Cellulosa (OTC:SVCBF): 7.9%
- Suzano (SUZ -0.92%)(SUZ -0.92%): 7.1%
- Stora Enso (SEOAY -0.65%)(OTCMKTS:SEOAY): 6.0%
- Smurfit WestRock (SW 2.09%): 5.6%
These top five holdings comprise 34.5% of the fund's total value. Several of its top holdings are real estate investment trusts (REITs) focused on generating revenue by owning timberland. These REITs harvest and sell the lumber to mills they own or those operated by third parties.
Its top holdings also include a diversified wood products company based in Canada. That company produces lumber, plywood, pulp, newsprint, wood chips, and other wood products. Meanwhile, Sweden-based Svenska Cellulosa is Europe's largest private forest owner. The fund offers global diversification (only 30% of its holdings are U.S. companies).
One factor investors should consider is the iShares ETF's expense ratio. At 0.42%, it charges a reasonable management fee. Meanwhile, the fund offers an attractive dividend (its yield was over 2% in mid-2024).
CUT ETF
2. Invesco MSCI Global Timber ETF
The Invesco MSCI Global Timber ETF focuses on timber REITs and companies selling forest products, paper products, and paper packaging. The fund aims to track the MSCI ACWI IMI Timber Select Capped Index. As of mid-2024, the Invesco ETF managed over $50 million in assets.
The Invesco ETF holds more stocks than the iShares Global Timber & Forestry ETF, with over 75 as of mid-2024. Its five largest holdings by value were:
The five holdings make up a little over 25% of the total value of the Invesco ETF's portfolio. One of the biggest differences with the Invesco ETF is that it provides investors broader exposure to the wood products marketplace. Four of the largest holdings focus on maximizing the value of wood fibers by using them to make paper and packaging products, as well as lumber products.
The Invesco ETF also offers exposure to the timber market, led by timber REIT Weyerhaeuser. That company is one of several holdings in the ETF that manage timberlands and/or operate lumber mills.
The Invesco ETF's broader approach to the lumber market has one notable benefit: It's less volatile since it has less direct exposure to the wild fluctuations of lumber prices. However, that also gives it slightly less upside potential in a rising lumber price market.
This ETF's expense ratio, at 0.61%, is higher than the iShares Global Timber & Forestry ETF. However, that's still a reasonable management fee. This fund also offers the opportunity to collect income (over 2% yield in mid-2024).
Related investing topics
Diversification
Diversified ways to invest in lumber
Investors have two ETF options to play the potential rise in lumber prices. Both offer broad exposure to the sector but with slightly different twists. The iShares Global Timber & Forestry ETF has higher exposure to timber company REITs and has a lower expense ratio.
Meanwhile, the Invesco MSCI Global Timber ETF offers broader exposure to the wood products sector, making it potentially less volatile. Either way, both ETFs should benefit from rising lumber prices, making them solid options for investors looking to profit from a potential surge in prices in the future.
