What is a 'Paper Industry ETF'

The Paper Industry ETF is an exchange-traded fund that invests primarily in manufacturers of paper, pulp and timberland.

BREAKING DOWN 'Paper Industry ETF'

The Paper Industry ETF falls under the timber and forestry sector. This group includes manufacturers of all forest-related products, including paper. Due to the small number of paper companies that remain within the United States, many of these exchange-traded funds have a global reach. Asia, Canada and Finland all have a market presence in the industry. .

Some of the products these funds refer to include building lumber, packaging materials and forestry leaseholds. The investment possibilities for these exchange-traded funds goes beyond the physical products that are produced and can include the work of the companies that harvester and distributor as well.

In a bull market, forestry and paper stocks rank higher as they are tied to development and production in the economy. However, they aren't infallible; as technology progresses and more industries go paperless or use recycled materials, the call for paper-based products may begin to decline, as may the value of some paper industry exchange-traded funds.

What is an Exchange-Traded Fund (ETF)

An exchange-traded fund (ETF) tracks the progress of a group of common commodities. For example, the paper industry ETF pertains to commodities and assets relative to the paper industry. Similarly, the Steel Industry ETF centers around the production, distribution and other commodities as they relate to steel. Since these types of funds are traded in a similar manner to how stocks are traded, they shift in value and price throughout the day. They may also have a residual value, and owners may find themselves on the receiving end of payments when the funds are liquidated or the assets themselves increase in value.

As an example, as gold fluctuates in price, any holder of a gold exchange-traded fund would witness the value of the stock change based on the changes to the asset in the fund. When gold prices drop, so would the price and value of the fund.

Because these funds are tied to underlying commodities, investors have opportunities for shorting and buying on margin. ETFs also tend to be more tax efficient than other funds like mutual funds. Anyone looking to consider the tax ramifications of these products should first consult with a licensed tax professional.

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