Surging Dry Bulk Shipping ETF Up 40% In Past Month Doesn't Mean All Is Well

An ETF strategy that tracks dry bulk freight futures has surged in recent weeks, along with the jump in the widely observed Baltic Dry Index, but some have warned of global growth concerns that could pressure trade.

The Breakwave Dry Bulk Shipping ETF (NYSEArca: BDRY) advanced 38.8% over the past month and increased 60.3% over the past three months.

The Baltic Dry Index that tracks the cost of shipping commodities around the world is hovering at its highest level since 2014, the Wall Street Journal reports.

Analysts, though, pointed out that the recent gains have largely been driven by a resumption of iron-ore shipments out of Brazil, following a fatal accident earlier this year that kept mining operations closed for months. The sudden spike in shipments helped lift demand for large ships transporting iron ore and other raw materials to China, lifting the widely viewed shipping index up 85% in the past month through Tuesday.

Other more skeptical observers are skeptical that global growth could sustain the elevated levels in the Baltic Dry Index after measures of factory activity have slid, along with gauges of whether economic data points are broadly meeting expectations. Overall, global economic growth is still anticipated to slow this year due to the ongoing U.S.-China trade tensions and as businesses limit spending in the late business cycle.

New international shipping rules may have also had a hand in providing a short-term boost in shipping rates. New rules will take effect next year that aim to cut the amount of sulfur in marine fuel. The new scrubbing technology should help lower emissions, which would also affect shipping rates.

“While a large part of this strength is attributed to a pickup in iron-ore shipping activity, the other element is reportedly lower vessel availability due to ongoing scrubber installations,” ING analysts said in a recent note.

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.

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