2) An overcapacity risk. If too many ships or ports are built, it’s going to affect the industry. The index’s provider, Delta Global, found that only 11% of ships due to be delivered in the coming years are currently under construction. There are also a dozen new ports around the world set to go under construction, but none of them have yet broken ground, largely as a result of the credit crisis. If overcapacity is a risk, it’s one that could be further off than thought.
“There’s this classic supply and demand issue that affects shippers,” Magoon says. Just as they have the potential to do well when things are moving onward and upward, they’ve also got the potential to feel the pinch when economic sentiment is negative.
The 30-component fund is most heavily weighted in Greece, which is 35.3% of the index. The United States is the second-largest component at 19%, followed by Bermuda and the Bahamas at 15% apiece. Not only are the these countries favorable in the access they give to key markets, but they have favorable tax policies to corporations. The expense ratio is 0.65%.
One strong benefit of shipping stocks is their ability to pay dividends, thanks to their structure. While the ETF hasn’t yet declared a dividend, which it will do on a quarterly basis, the dividend on the index is a little over 8%.
“I think what we have here is like the Gold Rush,” Magoon says. “People went out and mined – some did well, many did not. The people who did do well were those who sold blue jeans, picks and axes.”