Wood ETF is a best buy idea, as Lumber markets continue to show improvement

NEW YORK (Scrap Monster) : The sharp rebound in US housing sales have led to huge rise in Lumber prices over the previous year.

The resurgent lumber market has pushed the sawlog prices upward throughout North America.  The prices for Douglas-fir sawlogs in the Western US reached a five-year high during the last quarter of 2012.The prices continued the same trend during the initial quarter of 2013 as well. The increasing log demand from domestic sawmills and from log buyers in Asia has kept the lumber prices high.

Sawlog prices have also inched up in Coastal British Columbia and Eastern Canada as a result of tighter log supply. The Southern states are also expected to follow the trend and see a jump in log prices in 2013 as seen in the rest of Northern America.

An analysis of the price movement of S&P Global Timber & Forestry Index Fund (ETF) will throw more light into the progress made by the Lumber industry during the previous year. The “Wood” which slipped lower during the first half of 2011, remained tightly range bound for the rest of the year and almost till mid 2012.Since June 2012, the ETF has gained over 40% in the past 10 months. The returns from the ETF over the past 12 month’s period were 18.78%, which is obviously better than the 10.69% annual returns from the index itself.

Take for instance, the stock price of wood flooring retailer Lumber Liquidators Holdings Inc which has around 300 retail stores across US. The share prices have surged over 366% from $15 to $70 since the end of 2011.

The Lumber market will witness greater momentum in the year 2013 as the demand is estimated to remain strong. Investors can still consider parking their money into Wood ETF as analysts believe that there is still more room on the upside.