I keep up on the global investment marketplace by actively scanning a deluge of charts each week. My ongoing analysis involves major sectors throughout the stock, bond, and commodity categories. As such, it’s rare that I stumble across a chart or trend that completely catches me off-guard. Score one for the forestry and timber markets that I happened to dig up (no pun intended) quite by accident.

A look at the two-year chart of the iShares Global Timber & Forestry ETF (WOOD) shows an industry group achieving extremely strong growth with minimal volatility. WOOD has enjoyed a +76% rise over that time frame and continues to demonstrate formidable strength versus the broad market. For the sake of comparison, the SPDR S&P 500 ETF (SPY) has risen +37% over that stretch.

WOOD provides exposure to companies that produce forest products, agricultural products, and paper and packaging products. That translates to a small group of just 25 stocks, with the top five holdings accounting for nearly 40% of the total portfolio.

Just 35% of the company exposure in WOOD is domiciled here in the United States. In fact, the top holding is a Swedish firm called Svenska Cellulosa, while Canada and Brazil account for a significant portion of the overall country exposure.

This ETF has $550 million in assets under management and charges an expense ratio of 0.51%. That’s a noteworthy asset base for a relatively niche industry group with a focused portfolio of stocks.  Not the typical highly diversified portfolio that we see with most sector ETFs.

The rising prices of commodities over the last twelve months have likely played an important role or at least added an economic tailwind for the price appreciation in ETFs like WOOD. Green shoots in inflationary data may also continue to bolster demand for natural resource stocks.

At a fundamental level, many of these stocks may have been simply playing catch-up to the global market benchmark. WOOD now trades with a weighted price/earnings (P/E) ratio of 17.37, which is nearing the 18.31 P/E of the iShares MSCI ACWI ETF (ACWI). While not overly expensive at this juncture, it’s worth noting the similarities of this comparative valuation measure.

Another exchange-traded fund in this category is the PowerShares MSCI Global Timber Portfolio (CUT), which contains exposure to more than 70 stocks and charges a net expense ratio of 0.55%. This fund has a far different distribution of underlying companies and country exposure than its primary rival.

You have to love how the ETF sponsors have played with the ticker symbol selection in these funds as well. Bravo to the marketing departments that provided input on these identifiers.

The Bottom Line

It’s difficult to know where we are at in the overall cycle of natural resource stocks being driven by inflationary commodity forces. Nevertheless, the impressive trend of timber stocks is one that will now be on my radar for the foreseeable future.