Shipping ETF SEA Riding Global Recovery

September 13, 2013

The rising tide of the shipping industry is lifting SEA’s returns and asset inflows.

The shipping industry is finding smooth sailing after a few years of rough seas. The exchange-traded fund industry’s only pure play on an industry so central to global commerce, the Guggenheim Shipping ETF (SEA | B-47) is reflecting the shifting fortunes of the global economy.

SEA’s returns have been solid in the past year thanks to rising raw material demand from the second-largest economy in the world, China, and flows into the $43 million fund have clearly been accelerating this summer. SEA isn’t the only indicator of the global economy’s improved prospects, and it’s not the most important, either. But it’s a viable play on the global recovery.

Indeed, the widely followed Baltic Dry Index—which tracks global freight rates for ships carrying dry-bulk commodities such as coal, iron ore and grain—finished Wednesday 4.6 percent higher, lifting it to its highest closing since January 2012, according to the Wall Street Journal. It has risen 36 percent this month alone.

The index provides an assessment of the price of moving the major raw materials by sea, and is also seen as an economic indicator of future economic growth and production. Not surprisingly, the index hit an all-time low in the autumn of 2008, after Lehman Brothers collapsed and the global economy had to be put on life support.

But China’s raw materials consumption is now picking up again after slowing earlier this year, boosting commodity prices and shipping rates and spelling positive inflows for SEA, which tracks the Dow Jones Global Shipping Index.

The index allocates about two-thirds of the portfolio to “industrials” and the other third to energy, which suggests that, roughly speaking, around two-thirds of SEA’s holdings are likely to reflect what the Baltic Dry Index seeks to represent. In other words, there is a correlation between the fund and the index, but it is imperfect.

In any case, the ETF has taken in $12.87 million year-to-date through Sept. 11, and $7.6 million from Aug. 1 through Sept. 11, according to data compiled by IndexUniverse.

Also, the fund’s share price, which closed at $19.75 on Thursday, is up by almost 7 percent in the past month, 22 percent this year and 31.5 percent in the last 12 months.

Jim Corridore, senior associate director, equity research at S&P Capital IQ, added that the pickup in activity in China, along with improved global economies in other regions, is going to fuel increased shipping activity.

“We think we’re at the start of a very slow, bouncing-along-the-bottom, steadily improving global economy, led by the U.S., acceleration in China and the eurozone finally picking up,” he said.

 

 

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