Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect the timber industry to prosper over time as our planet's population continues to grow and build, and you like the prospects for paper, as well, the iShares S&P Global Timber & Forestry Index ETF (NAS: WOOD) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.

The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The iShares ETF's expense ratio -- its annual fee -- is a relatively low 0.48%. The fund is on the small side, too, so if you're thinking of buying, beware of possibly large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.

This ETF has slightly underperformed the world market over the past three years, but the future matters much more than the past. And, as with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.

With a low turnover rate of 21%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.


Why timber and forestry?
One reason to be bullish on the timber and forestry industry is that the long-beleaguered housing market is finally showing signs of life.

More than a handful of timber-related companies had strong performances over the past year. Timber REIT Weyerhaeuser (NYS: WY) soared 64%, partly on signs of a recovering housing market. It has lower debt than many peers, but it also sports a smaller dividend payout, recently yielding 2.4%. It's viewed as overvalued by some, though. It's involved in a range of operations, from real estate to homebuilding to timberlands to packaging, and more. One particularly promising part of its business is its thermoplastic composite operations, incorporating sustainably sourced cellulose fiber.

Up 25% over the past year, Plum Creek Timber (NYS: PCL) , like Weyerhauser, is a REIT, obligated to pay out the lion's share of its earnings as dividends. It's the largest private landowner in the nation, boasting about 6.6 million acres of timberlands, and it also manufactures products such as plywood and fiberboard. Its stock recently yielded 3.8%, but as it earns more, it could pay out much more.

Both MeadWestvaco (NYS: MWV) and Fibria Celulose  (NYS: FBR) gained 9% over the past year. MeadWestvaco, yielding 3.3%, recently reported flat revenue in its third quarter, citing unfavorable currency exchange rates and lower land sales. It's expanding its presence in India by buying corrugated packaging materials company Ruby Macons Ltd. It's also boosting its paperboard business in Brazil, among other things.

Brazil-based Fibria Celulose specializes in short-fiber pulp, used in items such as paper and toilet paper. Some are bullish, due to its presence in a relatively rapidly growing developing nation, but others remain cautious, as the company's revenue has been up and down in recent years, and its earnings have become losses lately. Carrying substantial debt, the company recently sold some land to Chile.

The big picture
Demand for forestry products isn't going away anytime soon. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.

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The article This Money Does Grow on Trees originally appeared on Fool.com.

Longtime Fool contributor Selena Maranjian, whom you can follow on Twitter, has no positions in the stocks mentioned above. The Motley Fool owns shares of Weyerhaeuser Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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