Investors who are looking for a little more income may take a look at a shipping-related exchange traded fund to capitalize on the growing need for oil storage capacity.
The Guggenheim Global Shipping ETF (NYSEArca: SEA), which tries to reflect the performance of the Dow Jones Global Shipping Index and holds high dividend-paying companies in the global shipping industry, comes with a 3.32% 12-month yield.
Shipping may be a largely overlooked area of the market that provides access to real assets and an alternative source of yields, reports John Authers for Financial Times.
Demand for tankers has increased as some responded to the recent sell-off by acquiring more oil on the cheap to stockpile for later use or sale, benefiting from the opportunity in a contangoed market.
According to the CME Group, West Texas Intermediate crude oil for April 2015 delivery is trading at about $44.6 per barrel, whereas oil for April 2016 deliver is at $56.6 per barrel. Consequently, some are hoarding oil on the cheap now and putting it in storage in hopes of selling at a higher price in the future. [Shipping ETF Sees Tailwind from Oil Storage Demand]
Additionally, Andrew Dacy of JPMorgan Asset Management suggests that container ships make a good contrarian play on the renewed Chinese economic activity since China is a major importer of raw materials. Containers can also experience greater movement toward the U.S. as a strong U.S. dollar could stimulate consumer demand for cheaper foreign goods.
Looking at the sector, the long-established area has a long history of data dating back two centuries. Moreover, investors won’t be blindside by technological advances ass they are relatively easy to predict.
Nevertheless, the shipping sector faces some risks, including a potential global slowdown or currency disruptions, which could both diminish trade volumes and pressure shipping rates.
Guggenheim Global Shipping ETF
For more information on the shipping sector, visit our shipping category.
Max Chen contributed to this article.