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All Aboard! 2 Funds Investors Can Use To Catch The Shipping Rebound

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Investors are debating whether the economy is headed for a hard or soft landing. A hard landing would be a steep recession, while a soft landing is a more gradual slowdown. This uncertainty is prompting investors to closely monitor economic indicators and adjust their investment strategies accordingly.

The end of the COVID-19 pandemic lockdowns, which disrupted the world’s supply chains, wreaked havoc on the transportation of commodities, exposing the fragile nature of the global supply chain. The cost of shipping cargo such as grains, raw materials, coal, and other essential goods is referred to as the dry bulk price.

Dry bulk shipping prices are a good way to measure the health of the global economy as they reflect the level of trading activity and commodity demand. When the economy is strong, and demand is high, shippers can expect an increased shipping price and vice versa, during slowdowns when global demand is weak.

Here are two ETFs that investors can use to play a recovery in shipping costs. The Breakwave Dry Bulk Shipping ETF (BDRY) is an exchange-traded fund designed to reflect the daily price movements of the near-dated dry bulk freight futures.

As you can see, BDRY has dropped precipitously from its 2021 high and is now back to pre-pandemic levels. If you believe the global economy won’t slip into a recession and the continuing re-opening of China will fuel overseas commerce, this could be a good time to add this ETF to your watchlist.

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While BDRY provides investors with a fairly pure play on dry bulk freight, without directly trading futures, it’s important to be aware BDRY is itself composed of near-term futures contracts. This is a reminder of the importance of knowing an ETFs structure.

A brand-new ETF called the Breakwave Tanker Shipping ETF (BWET) started trading last week. It is the first ETF to concentrate on just the oil tanker shipping industry. This ETF offers investors exposure to oil tanker futures contracts.

This image is not a recommendation or individual advice. Please see bottom disclaimer for additional information, including Magnifi Communities’ relationship with Magnifi.

“We’ve seen that investors are seeking exposure to the supply chain,” says Matthew Bromberg, COO of ETFMG. “There is an under investment in shipping capacity and crude oil tankers represent nearly one-third of the global shipping transportation capacity. BWET is the first of its kind to provide this unique access to oil transport futures contracts.”

This fund will hold oil freight futures contracts with a weighted average of approximately three months to expiration. The theory is that you are betting on the future price of shipping costs. China alone accounts for 9 million barrels of oil a day, making it one of the world’s top importers. A recovery in demand there along with the fact that shipping fleet supply is not growing will create upside pressure in freight costs.

The spot rates for very large crude carriers (VLCCs), which BWET tracks, just reached a historically high $100,000 per day, signaling confidence that the tanker business is rebounding. However, be aware that because BWET started trading last week, it does not yet have a long track record of performance.

Both funds have a relatively high expense ratio of 3.5%, which reflects the volatile nature of the index and the leverage of the futures gains, and losses, that can occur in these funds.

Now that pandemic-related disruptions are largely over, the fund’s performance is expected to revert to the fundamentals of supply and demand. These funds provide investors with a means to participate in the commodities rebound.

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Steve Smith

Steve Smith have been involved in all facets of the investment industry in a variety of roles ranging from speculator, educator, manager and advisor. This has taken him from the trading floors of Chicago to hedge funds on Wall Street to the world online. From 1987 to 1996, he served as a market maker at the Chicago Board of Options Exchange (CBOE) and Chicago Board of Trade (CBOT). From 1997 to 2007, he was a Senior Columnist and Managing Editor for TheStreet.com, handling their Option Alert and Short Report newsletters. The Option Alert was awarded the MIN “best business newsletter” in 2006. From 2009 to 2013, Smith was a Senior Columnist and Managing Editor for Minyanville’s OptionSmith newsletter, as well as a Risk Manager Consultant for New Vernon Capital LLC. Smith acted as an advisor to build models and option strategies to reduce portfolio exposure and enhance returns for the four main funds. Since 2015, he has worked for Adam Mesh Trading Group. There, he has managed Options360 and Earning 360, been co-leader of Option Academy, and contributed to The Option Specialist website.

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