Global Timber & Forestry ETF (WOOD) Poised For Further Gains

Conclusion, Investment Implications, Strategy

The iShares Global Timber & Forestry ETF (WOOD) has recently resumed its major uptrend amid emerging Strategic (quarterly) relative outperformance versus the S&P 500 and an emerging trend of Tactical (monthly) asset expansion.  Combined, these conditions suggest an emerging buying opportunity.  Moreover, we view this as a potential diversification opportunity as the S&P 500 has already risen by 107% since March 2020.

Analysis and Rationale

The iShares Global Timber & Forestry ETF (WOOD) seeks to track the investment results of the S&P Global Timber & Forestry IndexTM composed of global equities in or related to the timber and forestry industry. The fund will invest at least 80% of its assets in the component securities of the index and in investments that have economic characteristics that are substantially identical to the component securities and may invest up to 20% of its assets in certain futures, options and swap contracts, cash and cash equivalents. The fund is non-diversified.

The upper panel of Chart 1 below plots WOOD daily since April along with its 50- and 200-day moving averages, widely watched minor and major trend proxies.  The lower panel plots WOOD’s daily relative performance versus the benchmark SPDR S&P 500 ETF Trust (SPY) along with its 63-day (quarterly, our Strategic time period) moving average.

Chart 1

The upper panel shows that WOOD is trading above both moving averages following successful tests of its 200-day moving average on Jly 19th and Aug 19th.  This indicates the major and minor uptrends have resumed.  Meanwhile, the rightmost green highlights in the lower panel show that the relative performance line has moved back above its 63-day MA as of Friday, which suggests an emerging trend of Strategic outperformance by WOOD versus the US broad market.

The upper panel of Chart 2 below also plots WOOD daily since April along with its 200-day MA, but this time with the total net assets invested in WOOD and their 21-day MA in the lower panel. 

Chart 2

The rightmost green highlights in the lower panel show that these assets shifted to a monthly (our Tactical time period) trend of expansion as of Aug 27th, following a sustained trend of monthly contraction between Jun 2nd and Aug 26th.  Expanding investor assets indicate investor conviction that prices will continue rising.  As long as this new trend of monthly expansion continues, the current rise in WOOD — and in the lumber prices it represents — is likely also to continue.

Table 1 below shows that considering our 104.50 upside target and a protective stop placed below the 87.58 area, a long entry price of 91.77 would provide a 1:3.0 risk/reward ratio (risking $1.00 to make $3.00) with an initial risk of 4.6%.

Table 1

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Please consult the table showing our Asbury 6 key market metrics to help determine if this investment is suitable for you.