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Rebalancing Report Q3/2025

Rebalancing Q3 2025

Rebalancing Report Q3/2025 Timber Finance Carbon Capture and Storage Index (ISIN DE000SL0ECH7)

October 20, 2025

Author: Erik Reichmuth, Investment Advisor

Over the past six months, global stock markets have recovered from a correction and are climbing to new all-time highs on both sides of the Atlantic. The S&P 500 (US stock index) and the EURO STOXX 50 (EU stock index) are reaching new record highs[1]. Stock prices are currently being supported by stable inflation and a declining interest rate environment. Since the beginning of the year, inflation in the EU has fluctuated between 2.5% and 1.9%,[2] which is close to the long-term inflation target of 2%. A similar inflation situation[3] measured by the CPI can be found in the US, with fluctuations between 3% and 2.3% since the beginning of the year. The relatively stable inflation figures have given central banks room to lower interest rates in view of the generally weak economic growth. Since the beginning of the year, the European Central Bank [4] has initiated four interest rate cuts, lowering the reference rate from 2.75% to 2%. As the US Federal Reserve was struggling with higher inflation, it was unable to keep pace with the European interest rate cuts. At its last meeting in September, however, it decided on the first interest rate cut for 2025, reducing the key interest rate from 4.5%[5] to 4.25%.

 

Global stocks top – Wood stocks weak

In contrast to the broader stock market, the general timber industry, as measured by the Timber Finance Carbon Capture & Storage Index, has declined by a further 4.95% (previous period: -13.5%) despite low but stable economic growth in Europe and the US. This means that the listed companies represented in the Timber Finance Index have lost a total of 19.37% within a year. During the same period, the MSCI All Country World[6] (global stock index) gained 16.87%. As a result, the divergence between the broad stock markets and timber industry stocks has now reached historic levels (36.24% in total). It can be assumed that this divergence will be closed again in the medium term by a price correction on the general stock market or a price boom in timber industry stocks.

 

Abb 1: Timber Finance Carbon Capture & Storage Index 2016-2025. Source: Timber Finance

The following factors contribute to this divergence:

 

  1. Building permits

The number of building permits continues to recover in Germany[7] and the US[8], but remains close to historic lows. Building permits are an important general indicator of the strength of the timber industry.

Fig. 2: Building permits in the US and Germany, 2010-Q3/2025 seasonally adjusted. Normalized to January 2010 = 100. Sources: U.S. Census Bureau, U.S. Department of Housing and Urban Development, Federal Statistical Office.

 

  1. US customs policy

The long-term effects of the new US tariffs on Canadian and European wood producers are becoming increasingly apparent. From October 14, 2025, new import tariffs on wood, furniture, and wood processing products will apply in the US. European export companies will be subject to additional duties of up to 15%. The four Canadian companies in the index are also affected by a further increase in tariff rates. Canadian companies, which currently account for 18.8% of the total index, have a combined tariff rate of 14.54% before the new tariff rates come into effect. With the new countervailing duties (CVD) and anti-dumping duties coming into effect, Canadian companies will pay combined rates of between 26.5% and 47.65% and will therefore face significantly higher costs for exports to the US in the future.

 

  1. Sawn timber price volatility

There’s a lot of uncertainty in the European and North American lumber markets right now. Stuff like tariffs on wood products, the slow recovery of construction activity, and rising roundwood prices are dominating the conversation. This uncertainty is most clearly reflected in the price volatility of US 2-by-4 lumber[9]. Between April and the end of September 2025, there were four significant price corrections. Between April and May, the price fell by 19.5%, reaching a low of $538.05 on May 6. This was followed by a rapid increase of 29.27% with a high of $695.53 on August 1, 2025, followed by another price drop of 25.08%. Prices are now back above $600 and, despite enormous volatility, are back to their 5-year average.

In this extremely difficult market environment, which is additionally characterized by geopolitical uncertainty, the composition of the Timber Finance Index was restructured as follows as part of the semi-annual rebalancing.

 

Adjustments and analysis of the Timber Finance Carbon Capture and Storage Index

The following adjustments have been made to the composition.

Admission: Following the merger between Ina Invest AG and Cham Group AG and the fulfillment of liquidity requirements, Cham Swiss Properties AG (CH0524026959) was admitted with a weighting of 2.86%.

Exclusion: Ponsse Oyj, a leading Finnish manufacturer of harvesting machines, did not meet the liquidity criteria (min. $100k ADV) for inclusion in the index and will therefore be excluded from the index.

The composition of the index, which specializes in the CO2-storing wood processing chain, at the end of September 2025 shows a high proportion of companies with low market capitalization (7.6% micro-cap, 29.3% small-cap) and is geographically diversified with an allocation of 30.28% to European companies. Over 40% of the index consists of secondary product manufacturers – manufacturers and distributors of wood construction products, in particular engineered wood products. Timberland REITs and primary products (sawn timber) each account for 14% of the index, as do integrated forest owners who manufacture a wide range of wood-based products (the Nordic, vertically integrated forest owners).

 

Abb. 3: Industrial sectors Timber Finance Index Q3 2025 with focus (40.5%) on CO2-storing timber construction chain, source: Timber Finance

 

Index Price Development – Winners and Losers

Over the period from the end of March to the end of September 2025, the index recorded a price performance of -4.95%. North American stocks contributed most to this development in share prices, including Canadian sawn timber producers and US manufacturers and distributors of wood construction products.

As expected, Canadian timber companies in the index were particularly hard hit. With a price performance of -53%, Mercer International was the stock with the biggest price slump during this period. Interfor Corp. followed in second place with -32.1% and Boise Cascade Co. in third place with -21.2%, the only non-Canadian stock.

Nexity SA, a French real estate developer specializing in timber construction, bucked the negative trend on the index with a rise of +12.6%. Nexity SA was followed by Stora Enso with a price performance of +7.1% and Husqvarna with +5.9%.

 

Canadian timber companies under pressure, Europe remains strong

With an average price performance of -24.8% (in local currency), Canada was the region with the weakest performance in the index. Central European equities remained strong with an average performance of 6.2% and were a significant outlier in the index.

As expected, the micro-market capitalization segment is the weakest segment with an average performance of -29.2%. During the period under review, the cellulose, paper, and packaging sector was hit hardest with an average performance of -29.5%. The only sectors to see price increases were construction and solid wood, with an average performance of +12.6%, followed by forestry machine manufacturers with +0.7%. The fact that certain sectors along the wood value chain can achieve share price increases even in extremely difficult market conditions demonstrates how diversified and heterogeneous the wood value chain is and that even in difficult market conditions, certain sectors offer potential returns.

 

Long-term growth drivers remain in place

Despite the current weakness of listed timber construction companies, the long-term growth drivers for the timber industry remain in place, suggesting potential for share price gains. According to the latest figures from the US Chamber of Commerce, there is a shortage of 4.7 million homes in the US alone. The EU faces the same challenge: according to CBRE’s half-yearly report, there is also a shortage of 9.6 million homes in the EU.

Another important driver is not only the general demand for affordable housing, but also the specific demand for sustainable housing. The role of the construction industry in decarbonizing society has been increasingly in the political spotlight for some time now. This also highlights the advantage of timber construction in providing affordable, fast, and sustainable housing.

Several European countries have already begun to regulate the carbon footprint of new buildings: Denmark with clear limits from 2025, France via the RE2020 regulation, and the Netherlands with mandatory life cycle assessments (LCA). Sweden, Finland, and Estonia are currently introducing mandatory climate balances, which are to result in binding limits from 2030. At EU level, the revised Energy Performance of Buildings Directive (EPBD) will initially require all larger new buildings to report their total life cycle CO₂ footprint from 2028, and all new buildings from 2030. In Switzerland, the model regulations of the Swiss Conference of Cantonal Energy Directors (MuKEn 2025)[10] will introduce new, binding limits for embodied carbon in buildings from 2026. Furthermore, Minergie[11], Switzerland’s leading building label for sustainable construction, intends to launch a net-zero standard for buildings for the first time in 2026, in which the storage effect of timber construction can be taken into account. At the same time, ETS II (from 2027 for fuels in buildings) and the CO₂ border adjustment mechanism (CBAM, from 2026) will make energy- and emission-intensive building materials such as steel and cement more expensive. This will increase the cost of CO₂-intensive materials, while wood, as a climate-friendly alternative in construction, will receive increasing regulatory tailwind.

 

Recognition of carbon storage in buildings is gaining momentum

The market for carbon storage (carbon removal) is also continuing to develop. The new EU Carbon Removal Certification Framework (CRCF)[12] has created a legal framework in which the storage capacity of wood-based building products is officially recognized. The first Mass Timber Carbon Removal Certificates are being developed both by the EU itself for 2028 and, from 2025, by private providers such as the Zurich-based ClimateTech company Timber Finance[13], with the aim of providing builders and real estate developers with a new, tradable instrument and asset for their decarbonization strategies.

 

Conclusion and outlook

The last six months highlight the discrepancy between timber construction companies and the broader stock market: while the S&P 500 and EUROSTOXX 50 reached new highs, the Timber Finance CCS Index suffered, particularly in the North American segments. Europe, on the other hand, proved to be an anchor of stability. A look back shows that the Timber Finance Index has reached the 2,000-point mark four times since its all-time high of over 3,000 points in 2021. With the index currently standing at 2,065 points, we are seeing the first signs of a normalization of lumber prices and interest rates and a recovery in the construction industry, despite a generally difficult market situation.

The general regulatory environment and the Canadian government’s decision in July to approve a $1.25 billion aid package for the transformation of the national timber industry are also positive developments. Canada is not the only country to use fiscal policy to benefit the timber industry. Germany has also made a historic decision and passed a €500 billion financial package for defense and infrastructure. These and other packages will be an additional important driver for the construction industry, especially for timber construction.

If lumber prices continue to stabilize, the incipient recovery in the construction industry continues, and there are no further significant adjustments to US tariff policy, we expect the Timber Finance Index to stabilize. Due to increasing regulation of the construction sector and supportive fiscal policy in several core sales markets, we expect the Timber Finance Index to rise over the next 6–12 months and, depending on developments in the tech sector, to outperform the broader stock market.

 

Sources:

  1. S&P and EURO STOXX figures. Koyfin Today’s Markets
  2. EU Inflation 2.2% HCIP: Inflation | ECB Data Portal
  3. US Inflation 2.9% : 12-Month percentage change, Consumer Price Index, selected Categories
  4. EU interest rates 2%, 4 cuts in 2025, https://www.ecb.europa.eu/stats/policy_and_exchange_rates/key_ecb_interest_rates/html/index.en.html
  5. US interest, 4.25%: US Policy Rate, 1954 – 2025 | CEIC Data
  6. MSCI All Country World (global stock index) 16.87, https://www.msci.com/indexes/index/892400
  7. EU Homes Demand. https://www.cbre.com/insights/books/european-real-estate-market-outlook-mid-year-review-2025/living?utm_source=chatgpt.com
  8. US Homes Demand, https://www.uschamber.com/economy/the-state-of-housing-in-america?utm_source=chatgpt.com
  9. US lumber prices LBR Koyfin Today’s Markets
  10. Model regulations of the Swiss cantons in the energy sector (MuKEn, 2025)
  11. Minergie label, the net-zero building (2026)
  12. EU Carbon Removal Certification Framework
  13. Timber Finance Carbon Removals

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