The Baltic Dry Index, which tracks the rates for shipping
goods around the globe via large ships is hitting a multi-year
high and the related stocks are joining the breakout party.
The Guggenheim Shipping ETF (NYSE:
) was up one percent in early trading as it hits a new multi-year
The ETF is now up 32 percent in 2013 and has rallied 59
percent from the multi-year low hit in 2011. Even though the ETF
is up big from the lows, it still has a long way to go to get
back to the high set in 2010. It would take another 75 percent
rally from the current price to have the ETF retest the all-time
The rally in the shipping stocks has been fueled by
speculation that global growth will pick up in 2014, led by a
rebound in Europe and continued demand for goods in China. The
Chinese stock market has been struggling, however the economy is
still expected to increase by 7.5 percent next year.
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With the world's second largest economy set to grow by 7.5
percent in 2014 the demand for dry bulk goods should remain
solid. Add in the eurozone picking up and the cost of moving
goods around the world will continue to rise. The increase in
demand will lead to higher shipping revenue for the shipping
companies and thus higher stock prices.
SEA is a true global ETF with its top three countries in three
different continents. Denmark, the U.S., and Hong Kong make up 57
percent of the allocation that is composed of a total of 27
stocks. The top holding, AP Moeller-Maersk, is a Danish company
that makes up 19 percent of the portfolio. The stock is up 32
percent in 2013. The ETF charges a 0.65 percent annual expense
ratio and has a total of $93 million in managed assets.
The number one factor affecting SEA and the shipping stocks is
the state of the global economy. As long as the economic rebound
continues it will lead to a restocking of inventories that were
diminished during the recession. Therefore, the shipping stocks
and SEA are as cyclical as an investment as there is in the
The biggest risk is that the Chinese government is not
accommodative to a growing economy and the country goes into a
slowdown. If that is the case it will have a trickle affect that
affects the entire world and in particular the shipping
(c) 2013 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
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