A New Way to Play Lumber

Stock quotes in this article: CUT , WY , PCL , RYN , SPP , UPM , SEO , ARA  

That's pretty low for this sector. Many of the stocks in the fund yield considerably more. So you are faced with a tradeoff: Buy the fund and take less risk, or buy an individual stock, like Weyerhaeuser, and collect a 3.4% yield with more risk.

Timber exposure slots into the materials sector in a diversified portfolio, and obviously CUT is more of a foreign holding. I believe it will offer low-beta diversification.

However, at this point I wonder if the fund's back-tested outperformance is attributable the outperformance of the materials sector and the overall performance of foreign markets during the time studied.

As I have previously disclosed, I own Plum Creek, and I own it for all the reasons that Claymore has created this fund. While I think lumber companies are a fine segment to invest in it is important to reiterate that owning CUT or any of its component stocks is unlikely to have the same impact on a portfolio as owning timberland or lumber futures.

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At the time of publication, one of Nusbaum's clients was long PCL, although positions may change at any time.

Roger Nusbaum is a portfolio manager with Your Source Financial of Phoenix, and the author of Random Roger's Big Picture Blog. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Nusbaum appreciates your feedback; click here to send him an email.

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