An ETF That Focuses On Shipping Futures?


Earlier this week the Breakwave Dry Bulk Shipping ETF (BDRY) started trading. The concept is fascinating. It tracks shipping futures contracts in an active fashion in an attempt to reduce the impact that an unfavorable rolling of contracts might have (contango). Generally this part of the market has always fascinated me. The most well known proxy for this space is probably the Baltic Dry Shipping Index. The chart gives an idea of both the opportunity and the potential downside.

The Benzinga coverage of the fund includes seemingly contradicting comments that shipping futures have a low correlation to other asset classes like equities but they the tend to do well cyclically. Although there are a couple of studies that refute this, I think of stocks being pro-cyclical so if shipping futures are also cyclical, wouldn't they correlate to stocks? That is a little confusing in terms of setting any kind of expectation of what BDRY might do. The chart seems to support the low correlation aspect, I would say there is no correlation. More specifically I think the Baltic Dry Index has sometimes correlated positively to equities, sometimes negatively and with no obvious reason why.

For much of the current economic and stock market cycle the BDI trended lower and for the last couple of years it has trended higher but done so in a volatile fashion that is almost Bitcoinian.

There are publicly traded shipping companies. The history of the group is that many of them used to have monster yields and then the share prices imploded dramatically in the financial crisis but never got back up, maybe the BDI chart tells you why.

One name that still trades is Seaspan (SSW). In 2006 it was around $20, peaked in the high $30's in 2007 and currently trades in the sixes with a 7% yield. Here's a link from TheStreet with what is says is 10 top names in the space. I only recognize one or two others from 12 years ago in addition to SSW. On other one I recognize from TheStreet's list is Navios (NMM). It peaked three times near $20 over a very long period of time, it now is at $1.83 and Google Finance says it has no yield. One name not on the list that I remember from many years ago is Diana Shipping (DSX). In its pre-crisis glory it was at $40 and now it trades with a three handle and no dividend.

Ultimately, I don't think this is the volatility that too many investors will want to take on.