Shipping ETF Charts Course For Economy, Stock Market


Shipping stocks have finally charted a new course due north after sailing south for most of the past three years.

The Baltic Dry Index, gauging the price of shipping raw materials by sea, cruised ahead 26% the past month and a whopping 33% this year, Bloomberg data show. But it's ticked up less than 4% on a 12-month basis.

Despite the hefty gains recently, the index has to quadruple to regain its 2010 high and charter rates remain 55% below their 20-year-average (unadjusted for inflation), creating the potential for a very long voyage ahead just to get back to normal.

The Baltic Dry Index tracks the rates of 23 global shipping routes carrying a range of commodities via different types of carriers. It measures the supply and demand for shipping capacity against the supply of dry-bulk carriers and is indirectly used as a leading indicator to gauge future production and economic growth.

On the stock market today ,Guggenheim Shipping ETF ( SEA ), an international basket of cargo shipping firms, fell 1% to 17.51.

SEA can be used as a proxy for Baltic Dry Index by investors . SEA sailed forward 9% year to date while losing 5% in the past year. It has to rise another 68% to regain its 2010 high.

For comparison, iSharesMSCI EAFE Index ( EFA ), tracking developed foreign markets, added 4% and 8% over the same periods.IShares MSCI Emerging Markets Index ( EEM ) lost 5% year to date while shedding 2% the past year. The SPDR S&P 500 ( SPY ) added 9% and 11% over the same periods.

Carriers are expected to cut capacity near term because of weak demand for shipping between Asia, Europe and North America, Stewart Scharf, an analyst with S&P Capital IQ wrote in a client note March 15.

"Alphaliner (an industry consultant) sees about 10% capacity growth in 2013, with a 35% rise between 2010 and 2014, when the supply-demand balance should reach break-even," Scharf wrote. "The container ship charter market is expected to weaken further in 2013 as excess capacity depresses vessel earnings, according to Alphaliner."

The recovery in shipping stock prices suggests the market has looked past the negative news.

"The Journal of Commerce forecast sees eastbound trans-Pacific container shipping volume picking up somewhat in 2013 following about 1.5% to 2% growth in 2012," Scharf wrote. "Imports from China account for over 63% of the total from Asia, although Europe and the U.S. account for only 35% of China's containerized exports, with 45% intra-Asia. PIERS (the Port Import Export Reporting Service) projects U.S. import growth of 5.2% in 2013, while exports advance 4.3%."

The number of container units coming into the Port of Los Angeles -- the busiest in the U.S. and 16th in the world -- shot up 17% year over year in February after falling for three months straight, port data show . The container count vaulted 37% at the Port of Long Beach, Calif. -- the country's second-busiest port and 18th in the world.

Charting The SEA

SEA broke out of a bullish cup-with-handle pattern Friday, clearing a 17.71 buy point. It reversed lower Monday in heavy trade, but remained within 2% of the buy point.

SEA carries a middle-of-the-road IBD Relative Strength Rating of 51, indicating it's outperforming about half the market. But it sports a healthy B+ Accumulation-Distribution Rating, on an A-to-E scale, which means institutional investors are heavily buying more shares than selling. Stocks or ETFs with high Acc-Dis Ratings carry greater odds of continuing higher. SEA also trades above both its short-term 50-day moving average and the longer-term 200-day, a sign of a strong uptrend.

Guggenheim Shipping ETF's ( SEA ) Top 10 Holdings And Percentage Weighting

1. AP Moller - Maersk 17.37%

2. Nippon Yusen 8.54%

3. Mitsui Osk Lines Ltd 7.81%

4.Sembcorp Marine Ltd ( SMM ) 5.78%

5. Cosco Pacific Ltd 4.80%

6.Teekay LNG Partners LP (TGP) 4.24%

7.Teekay Offshore Partners LP (TOO) 4.03%

8.Teekay Shipping Corp (TK) 3.48%

9. Orient Overseas International Ltd 3.42%

10. Pacific Basin Shipping 3.10%

Follow Trang Ho on Twitter @TrangHoETFs .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , ETFs

Referenced Stocks: EEM , EFA , SEA , SMM , SPY

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