The Breakwave Dry Bulk Shipping ETF (BDRY) rode one part of the pandemic-induced supply chain crunch to return a stunning 283% over the course of 2021, nearly twice as much as the next best-performing fund that year.
But the $58 million fund’s fortunes have sunk in 2022 as the peak prices of the supply crisis fade. BDRY has fallen 22.7% year-to-date to rank among some of the worst-performing funds on the U.S. markets.
Shipping Pressures Fade
BDRY follows an index of cash-settling futures estimating the direction of off-market freight costs for raw materials. It remained at near-neutral levels during all of 2020 despite the Baltic Exchange Dry Index quadrupling at points during the year.
But a combination of the reopening trade in the spring of 2021, continued consumer demand for goods and the onset of the Delta variant sent both the Baltic index and BDRY to peaks in October. U.S. consumers also shopped early for holiday gifts last year, putting more stress on the entire supply chain through the end of fall and early winter.
With the peak prices now behind it, BDRY was unlikely to repeat its 2021 performance from such a high bar despite shipping prices still being well above prepandemic levels.
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“At the end of 2021 and the beginning of 2022, demand remains strong for consumption, especially in the U.S.,” said Tuan Nguyen, an economist at RSM US and co-author of the firm’s supply chain index commentaries. “But we've seen some moderation of demand.”
Nguyen expects supply chain pressures to subside in the second half of 2022 as factories get back to full operation and inventories recover. He also expects the Federal Reserve’s interest rate hikes to tamp demand, further releasing pressure on the supply chain.
Rising Tides Lift Some Boats
While BDRY has struggled to maintain its performance, two other shipping-related ETFs have done well so far this year.
However, BOAT and SEA follow indexes of shipping-related equities instead of futures contracts estimating the cost to ship.