Timber and lumber stocks and funds have boomed as demand for housing grows, but not equally. How they’ve fared has to do with which part of the wood supply chain, from raw timber to finished lumber, they’re emphasizing.
During this housing cycle, skyrocketing home prices aren’t due to dodgy lending, though ultra-low mortgage rates are helping. Instead, they are the result more from a combination of a pandemic response among people fleeing cities to hunker down in suburban homes, and a lack of housing supply in which to do so.
The supply issue is an odd story because there’s no shortage of timber in many parts of the country. In fact, many growers over planted a generation ago, leading to a glut of trees. Instead, the logjam in home construction is literally just that: it comes from a saw mill shortage that means that the country can’t generate lumber (timber that has been processed for building purposes) quickly enough, according to a series of stories in the Wall Street Journal by Ryan Dezember.
Moreover, the shortage of saw mill capacity is causing the mills that do exist to take all the profits and leave other parts of the chain to miss out despite the booming demand for wood.
The timber growers can’t get their logs through, so they aren’t benefiting much from housing demand. The home builders themselves mostly neither suffer nor prosper from high lumber prices. They simply pass the cost of the higher price for finished lumber on to the home buyer.
Reviewing the performance of various timber and lumber stocks and ETFs shows the divergence in fortunes.
| Stock/Fund | Return, March 24 2020 to May 28 2021 | YTD return through 28 May | Fund Size ($m) |
|---|---|---|---|
| Interfor Corp (IFSPF) | 471.71 | 50.04 | |
| Canfor Corpm (CFPZF) | 324.78 | 36.94 | |
| West Fraser Timber Co.Ltd, (WFG) | 291.13 | 20.14 | |
| Weyerhaeuser Co (WY) | 142.85 | 13.80 | |
| PotlatchDeltic Corp (PCH) | 106.71 | 21.33 | |
| iShares Global Timber & Forestry ETF (WOOD) | 103.55 | 14.73 | 461 |
| Invesco MSCI Global Timber ETF (CUT) | 96.47 | 14.39 | 115 |
| CatchMark Timber Trust Inc, (CTT) | 95.92 | 30.75 | |
| Rayonier Inc (RYN) | 85.84 | 31.03 |
Data as of May 28, 2021 / Source: Morningstar Direct
We ordered our list by performance from the March 24 low of last year’s Covid-19 lockdown descent.
Canadian lumber firms that own one-third of the timber processing in the Southern part of the US have done the best. Interfor, Canfor, and West Fraser Timber are up an eye-watering 471%, 324%, and 291%, respectively, since the Covid-19 bottom.
US-based Weyerhaeuser has also done well, posting a 143% return, but its operations are mixed among timber, lumber, and land development.
Rayonier, mostly a timber company, sits at the bottom of the list with an 86% return. That means there may still be some gains to reap from it if timber prices can catch up.
The stock is the fourth largest US holding of the Third Avenue Real Estate Value fund (TAREX), soaking up more than 4% of the portfolio’s assets. Although the Third Avenue fund has struggled against more mainstream real estate investment trusts (Reit) funds for the past three years, timber and other holdings have helped it produce a thumping 21% return this year through May 28, making it the top fund in Morningstar’s Global Real Estate category for that period.
Third Avenue’s co-manager, Ryan Dobratz characterizes Rayonier as more of a pure timber company with a land development business, and he likes the fact that the firm’s presence in New Zealand allows it to sell to Asia.
Dobratz and co-manager, Jason Wolf, also have nearly 5% of the fund in Weyerhaeuser, which combines timber with a processing business and a real estate business. Dobratz said a majority of that firm’s earnings were being generated from its wood products business, but added, ‘We’re of the view that the value ultimately flows back to the stump.’
The fund’s other residential real estate-related holdings include coastal California land development firm Five Point Holdings, in which it has 7% of its assets, home builder Lennar, UK builder Berkeley Group Holdings, and do-it-yourself moving and storage operator Amerco.
Rayonier is also the top holding of the iShares Global Timber & Forestry ETF, soaking up 9% of the fund’s assets. Weyerhaeuser is the ETF’s third largest position, and saw mill West Fraser sits between them in second place.
The Invesco MSCI Global Timber ETF is less of a pure timber and lumber play with office supplies firm Avery Dennison at the top of the portfolio. Although the fund owns the major timber and lumber companies, it also owns packaging and paper companies as well.
Both ETFs and the Third Avenue fund give investors a chance to participate in any further gains in timber.
"wood" - Google News
June 02, 2021 at 07:58AM
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Lumber logjam drives wood funds' blockbuster returns - Citywire USA
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