Monday, February 27, 2012

Don’t Overlook the Trees for the Forest

According to the Timberland Index maintained by the National Council of Real Estate Investment Fiduciaries (NCREIF) timber price movements have a very low correlation with other asset classes. In other words lumber is uncorrelated to stocks and bonds

At the close February 27, 2012 many lumber related stocks closed higher in an otherwise dull blue Monday for the broader North American stock indices. Higher were, Acadian Timber Corp. (ADN) +0.8%, Canfor Corporation (CFP) +1.43% International Forest Products (IFP.a) +3.48%, Tembec Inc (TMB) +1.1% andWest Fraser Timber (WFT) popping +3.68%. In the US International Paper Co. (IP) +3.01% and Weyerhaeuser Co. (WY) +1.8%

There are no Timber exchange-traded funds (ETFs) in Canada and so stock picking is required, In the U.S. there is the Claymore/Clear Global Timber Index (AMEX: CUT) and the iShares S&P Global Timber & Forestry Index (Nasdaq: WOOD). Both ETFs invest in timber REITs, as well as companies related to the industry: paper, packaging, etc. We technicians know that price will lead the fundamentals and so perhaps the strength in the forest sector is telling us two things – a recovery in the US housing sector and increased global demand for lumber. Our chart displays lumber over the SPDR Home Builders with both running up to and possibly above their 2010 and 2011 price peaks. The forest stocks seem to anticipating this very bullish scenario.

1 comment:

PofN-I said...

Brookfield infrastructure partners BIP.UN manages timber with in their infrastructure portfolio and pays a 5% dividend and is not followed even though it has a nice steady uptrend.