September started off on a solid note for the shipping industry,
which was under stress over the last few years on macroeconomic
headwinds and declining rates. The industry is bouncing back
strongly with rising freight rates on the back growing shipments
and a slowdown in new ship construction.
This is especially true given the rally in the Baltic Dry Shipping
Index, which is a measure of the costs to ship raw materials by
sea. The index jumped to a four year high, climbing over 45% over
the past one month.
China, the world's largest shipmaker by tonnage, has seen nearly
156% year-over-year increase in new ship orders in the first seven
months of this year.
This is because rising steel production and prices are attracting
iron ore (a major component of steel) purchases by Chinese steel
mills, leading to growing demand for shipping vessels. Iron ore
imports in China grew 11% in August, followed by 17% in July (read:
Time to Bet on the Steel ETF
The price of steel is likely to rise given the lack of Fed
tapering, as commodities could see a boost in this environment.
Further, commodities such as corn and soybeans recently saw
increase in prices. As a result, exports for these commodities
through ship vessels would climb to record levels by the end of the
year, according to the projection by the US Department of
2 Commodity ETFs Offering Investors Sweet
Overall, the increase in shipments of iron ore, coal, grains,
minerals, soybean and corn would raise freight rates across the
globe, greatly benefiting the shipping industry as a whole.
In such a backdrop, the main ETF tracking the industry has
performed extremely well this year. The
Guggenheim Shipping ETF (
gained nearly 6.5% in the past one month and delivered outsized
returns of over 24% in the year-to-date time frame. This return
clearly outpaced the broad market fund,
, and other products in the industrial space by a wide margin (see:
all the Industrial ETFs here
We think the SEA could be poised for a further surge in the coming
months, based on both technical and fundamental factors described
The fund currently made its new high of $19.90 and its short-term
moving averages have managed to stay above long-term levels. The
9-Day SMA is now comfortably above the longer-term 200-Day SMA,
suggesting continued bullishness for this ETF.
Meanwhile, the ETF has seen an increase in trading volume of late
further confirming the uptrend in the fund. This is further
confirmed by an upswing in the Parabolic SAR, although this figure
should definitely be monitored closely (see more in the
The product tracks the Dow Jones Global Shipping Index, which
measures the stock performance of high dividend-paying companies in
the global shipping industry. Holding 26 securities in its basket,
the fund is guilty of concentration, as company-specific risk runs
The top firm - AP Moller - holds about 19.90% of the assets while
Nippon Yusen and Sembcorp Marine take the next two spots at 9.56%
and 5.54%, respectively. In terms of country exposure, the United
States takes the top position with 22.05% share, closely followed
by Denmark (20.64%) and Hong Kong (14.30%).
Currently, the ETF is under-appreciated and unloved by many
investors as indicated by its AUM of only $42.7 million and average
daily trading volume of just under 31,000 shares. The product
charges 65 bps in fees and expenses (read:
Smooth Sailing Ahead for the Shipping ETF?
The shipping ETF could be poised to surge throughout the rest of
the year given its impressive performance and improving global
conditions. The space has bounced from its lows and continues to
trend higher on better demand/supply fundamentals.
As such, we recommend investors focus on this ETF as it is a
barometer for global demand and overall economic health, and it
could be well positioned to add to gains in the months ahead,
thanks to strong technical and fundamental factors at play in this
often overlooked corner of the market.
Want the latest recommendations from Zacks Investment Research?
Today, you can download
7 Best Stocks for the Next 30 Days
Click to get this free report >>
GUGG-SHIPPING (SEA): ETF Research Reports
TEEKAY LNG PTNR (TGP): Free Stock Analysis
To read this article on Zacks.com click here.
Want the latest recommendations from Zacks
Investment Research? Today, you can download 7 Best Stocks for the
Next 30 Days. Click to get this free report