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Chop gold ETF exposure, grow with timber instead

With net asset values of timber ETFs steadily appreciating over the long-term, investors should now be able to see the forest for the trees

John Lehmann/The Globe and Mail

While the Gold/U.S. dollar spot price has partially recovered from the lows experienced in late June, this year has seen price spikes ultimately overwhelmed by significant downward price pressure. Since 2013 began, gold is down 20 per cent.

Even if gold can build meaningful positive momentum, there is no guarantee that gold mining stocks will be able to salvage a difficult year. Thus far, the iShares S&P/TSX Global Gold Index Fund is down 40.95 per cent as top holdings Goldcorp Inc., Barrick Gold Corp. and Newmont Mining Corp. have depreciated 28.09 per cent, 42.65 per cent and 38.64 per cent.

For investors looking to find a replacement for gold equity ETFs, one compelling option is forestry equities, which offer natural resource exposure with relatively less volatility. While there are prominent Canadian companies in the sector, such as West Fraser Timber Co. and Canfor Corp., to acquire a basket of timber stocks, investors should consider two U.S. based ETFs, the iShares S&P Global Timber & Forestry Index Fund and the Guggenheim Timber Index ETF.

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Year-to-date, WOOD and CUT are up 17.67 per cent and 25.98 per cent. Over the last three years, they are up 25.50 per cent and 35.76 per cent, and over the last five years, these two ETFs are up 74.48 per cent and 137.95 per cent.

Further strengthening the investment case, both funds have significant scale with $348.2-million (U.S.) and $270.1-million in assets, and both offer dividend yields of one per cent, which more than offsets expense ratios of 0.48 per cent and 0.65 per cent.

Beyond being a materials-based substitute for precious metals stocks, the forestry sector has emerged as a top performer. With net asset values of timber ETFs steadily appreciating over the long-term, investors should now be able to see the forest for the trees.

ETFinsight is a website dedicated to helping Canadians connect with relevant ETF solutions. Read more at www.etfinsight.ca, follow us on Twitter @etfinsight and Josh Erhlich can be contacted at: josh@etfinsight.ca

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