A dry bulk shipping-related exchange traded fund has been cruising under the radar, quietly outperforming on expectations of a favorable resolution to the ongoing trade war and a turnaround in the global economy.
The Breakwave Dry Bulk Shipping ETF (NYSEArca: BDRY) has jumped 16.2% over the past week and surged 59.3% over the past three months. In comparison, the S&P 500 Index gained 2.9% over the past week and increased 4.8% in the past three months.
Shipping prices have been steadily strengthening on back-to-back gains. The Baltic Dry Index rose for 15 consecutive days. The index is comprised of the Capesize, Panamax and Supramax Timecharter Averages and acts as a proxy for dry bulk shipping stocks as well as a general shipping market bellwether.
The steady gains in the Baltic Dry Index reflect higher prices across the Capesize, Panamax and Supramax sub-indices that measure different sizes of carries or merchant ships.
Shipping rates across both hemispheres have exhibited strength throughout the week and demand for iron ore has boosted rates for larger vessels, according to SeekingAlpha.
“Considering that the BDI tends to reflect Chinese resource demand in real time, there would appear to be a good likelihood that commodity supply-demand will take a turn for the better, at least versus May-June,” Nomura strategist Masanari Takada said. “The BDI does have a seasonal tendency to improve in July, but the pace of improvement this time around is quite marked.”
The Breakwave Dry Bulk Shipping ETF tires to provide exposure to the daily changes in the price of dry bulk fright futures by tracking three-month strip of the nearest calendar quarter of futures contracts on specified indexes that measure rates for shipping dry bulk freight. Specifically, the Benchmark Portfolio includes 50% exposure in Capesize Freight Futures contracts, 40% exposure in Panamax Freight Futures contracts and 10% exposure in Supramax Freight Futures contracts, according to the fund prospectus sheet.
BDRY achieves “direct exposure to shipping rates, which can move significantly. Volatility in rates offers a potentially attractive uncorrelated source of return. Unlike shipping equities, BDRY offers direct exposure to freight futures eliminating equity market risk, company-specific risk, potential dilution, etc.,” according to BreakWave Advisors.
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