How does the WOOD ETF operate?

The WOOD ETF actively manages its portfolio by investing at least 80% of its net assets in underlying equity ETFs. These ETFs represent various equity sub-strategies, and the WOOD ETF's allocation among these sub-strategies is determined using a proprietary quantitative investment system. The system considers factors like price, market volatility, and changes in U.S. credit markets to allocate the Fund's assets.

What are the different sub-strategies included in the WOOD ETF?

The WOOD ETF includes exposure to four main equity sub-strategies: U.S. Large Capitalization (companies with market capitalizations of $10 billion or more), U.S. Small Capitalization (companies with market capitalizations below $3 billion or similar to those in the Russell 2000 Index), Emerging Markets (countries recognized as emerging markets by the international financial community), and Non-U.S. Developed Markets (equities from developed markets excluding the U.S. and Canada).

How does the WOOD ETF handle positive and negative return indications?

When the proprietary quantitative investment system indicates a positive return for a specific sub-strategy, the WOOD ETF may invest up to 133% of its portfolio in the corresponding underlying equity ETFs and equity index futures contracts. Conversely, in the case of a negative return indication, the adviser may use equity index futures contracts to provide short investment exposure to the applicable sub-strategy. If all four sub-strategies show negative returns, the Fund may primarily invest in cash or cash equivalents.

What is the potential impact of using futures in the WOOD ETF?

The use of futures in the WOOD ETF introduces leverage, which can amplify both potential gains and losses. This means that market volatility may have a more pronounced effect on the Fund's net asset value, potentially leading to increased returns during favorable market conditions but also higher losses during unfavorable ones.

5 min read

By Beqa Bumbeishvili, ETF Insider

What is the WOOD ETF ?

In the world of finance, Exchange-Traded Funds (ETFs) have gained significant popularity due to their diverse investment options and potential for growth. One such ETF that stands out for its unique focus is the WOOD ETF. This article aims to provide a detailed analysis of the WOOD ETF, its underlying assets, benefits of investing in it, and important considerations for potential investors.

[WOOD ETF] : Overview

The WOOD ETF is an investment fund that seeks to track the performance of the S&;P Global Timber & Forestry IndexTM (the “Underlying Index”). This index consists of 29 of the largest publicly traded companies involved in the ownership, management, or upstream supply chain of forests and timberlands. These companies include forest products, timber real estate investment trusts (REITs), paper products, paper packaging, and agricultural products firms. The fund's concentration in specialized REITs and forest products industries provides investors exposure to the dynamic timber and forestry sector.

[WOOD ETF] Underlying and Exposure: What Does It Track and How?

The WOOD ETF's underlying index constituents are selected using specific screens based on revenue from timber and forestry-related businesses, GICS classification of specialized REITs, and exposure scores. Companies deriving at least 25% of their aggregate revenue from timber and forestry-related businesses or categorized as Timber REITs are included. Additionally, companies with an exposure score of 0.5 or above are also considered for inclusion. The index is reconstituted semi-annually and reweighted quarterly, ensuring up-to-date representation of the sector.

WOOD overlap What is the WOOD ETF ?

[WOOD ETF]: Benefits to Invest in This ETF

Investing in the WOOD ETF offers several advantages. First, it provides diversification across various companies in the timber and forestry industry, reducing the risk associated with investing in individual stocks. Second, the ETF captures the potential growth and stability of the sector, which is influenced by factors such as global demand for wood products, construction activities, and sustainable practices. Lastly, the ETF's indexing approach aims to minimize costs and maintain low portfolio turnover, providing investors with better after-tax performance compared to actively managed funds.

[WOOD ETF]: Considerations Before Investing

As with any investment, there are essential factors to consider before investing in the WOOD ETF. The most crucial consideration is an investor's risk tolerance and long-term investment goals. While the timber and forestry industry may offer growth potential, it also carries inherent risks related to economic fluctuations, regulatory changes, and environmental factors. Additionally, investors should research the Fund's historical performance, expense ratios, and liquidity to make an informed decision.

Conclusion:

The WOOD ETF provides investors with a unique opportunity to participate in the growth potential of the timber and forestry sector through a well-diversified investment vehicle. With its underlying index's comprehensive approach and periodic rebalancing, the ETF aims to deliver performance consistent with the sector's overall trends. However, potential investors should conduct their due diligence and consider their financial objectives and risk tolerance before making any investment decisions.

Disclaimer: This article is for informational purposes only and does not constitute investment advice. The author is not providing any investment advisory services. Investors should consult with a qualified financial advisor before making any investment decisions.

Sources:
S&;P Global Timber & Forestry IndexTM Methodology
FactSet's Revere Business Industry Classification System (“RBICS”) data
Global Industry Classification Standard (GICS) classification
United Nations Global Compact (UNGC) compliance information provided by Sustainalytics
RepRisk for screening and analysis of controversies related to companies within the Underlying Index
Remember that the information presented here is based on the sources available up to March 2023 and is subject to change over time.

WOOD ETF issuer
WOOD ETF official page

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FAQ

What is the WOOD ETF?
The WOOD ETF is an exchange-traded fund that seeks to achieve its investment objective by investing in other exchange-traded funds (ETFs) primarily focused on equity securities. It aims to provide exposure to different equity sub-strategies, including U.S. Large Capitalization, U.S. Small Capitalization, Emerging Markets, and Non-U.S. Developed Markets securities.
How does the WOOD ETF operate?
The WOOD ETF actively manages its portfolio by investing at least 80% of its net assets in underlying equity ETFs. These ETFs represent various equity sub-strategies, and the WOOD ETF's allocation among these sub-strategies is determined using a proprietary quantitative investment system. The system considers factors like price, market volatility, and changes in U.S. credit markets to allocate the Fund's assets.
What are the different sub-strategies included in the WOOD ETF?
The WOOD ETF includes exposure to four main equity sub-strategies: U.S. Large Capitalization (companies with market capitalizations of $10 billion or more), U.S. Small Capitalization (companies with market capitalizations below $3 billion or similar to those in the Russell 2000 Index), Emerging Markets (countries recognized as emerging markets by the international financial community), and Non-U.S. Developed Markets (equities from developed markets excluding the U.S. and Canada).
How does the WOOD ETF handle positive and negative return indications?
When the proprietary quantitative investment system indicates a positive return for a specific sub-strategy, the WOOD ETF may invest up to 133% of its portfolio in the corresponding underlying equity ETFs and equity index futures contracts. Conversely, in the case of a negative return indication, the adviser may use equity index futures contracts to provide short investment exposure to the applicable sub-strategy. If all four sub-strategies show negative returns, the Fund may primarily invest in cash or cash equivalents.
What is the potential impact of using futures in the WOOD ETF?
The use of futures in the WOOD ETF introduces leverage, which can amplify both potential gains and losses. This means that market volatility may have a more pronounced effect on the Fund's net asset value, potentially leading to increased returns during favorable market conditions but also higher losses during unfavorable ones.

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