Anchors Aweigh! Claymore Launches SEA

August 25, 2008

New Claymore ETF covers global shipping industry.

On Monday, Claymore Securities launched the first-ever ETF to cover the global shipping industry.

And it's not a bad idea at all: Increasing globalization means raw materials and manufactured goods need to be shipped farther than ever before. Shipping rates, as measured by the Baltic Dry Index, have risen for the past five years.

With its oh-so-apt ticker, the Claymore/Delta Global Shipping Index (NYSEArca: SEA) covers companies engaged in maritime transportation of goods or in the leasing or operation of ships that transport goods. It tracks the Delta Global Shipping Index, which covers 30 stocks from around the world.

"Shipping companies are really a proxy for global economic sentiment—more than two-thirds of the goods in the world are transported through ships," said Claymore President Christian Magoon.

"This area in transportation has not really been accessible before in an ETF or in packaged form," he noted.

Actually, something along those lines has been available to a certain extent—from Claymore itself. Magoon says the index provider's parent company, Delta Global Advisors, manages a global shipping unit investment trust for Claymore, which was how Claymore decided on it as the product's index provider.

"We've been working with Delta Global for about two years. Delta Global has actually been selecting a shipping UIT [unit investment trust] portfolio for us, and we've had success there in raising assets. We wanted to bring an ETF version of it [to market]," Magoon said.

The index itself provides pure-play coverage, requiring that components derive at least 80% of their revenues from maritime shipping. Components also must be listed on a developed market stock exchange and have a minimum market capitalization of $250 million and a minimum 30-day average daily trading volume of $2 million. Components are reconstituted annually, but the index is rebalanced quarterly—with the fund paying out distributions at that time—with a 4% cap placed on individual stocks, along with other weighting limits.

Spanning The Spectrum 

Currently, the index includes companies from a mix of countries that span the emerging and developed markets spectrum: Greece (35.3%), the United States (19.08%), Bermuda (15.37%) the Bahamas (10.09%), Japan (7.34%), Jersey (3.91%), Hong Kong (3.8%), China (2.62%) and Singapore (2.48%). The high weighting in Greece may seem odd, given the small size of the country, but Magoon pointed out its convenient position in the Mediterranean, near Europe and the Middle East, with some access to Asia. The situation is similar for Bermuda and the Bahamas, which are close to North and South America. Some of the countries also offer favorable tax treatment to companies domiciled in them.

In addition to providing access to an industry that serves as an indicator of global economic sentiment and the fact that most of the world's goods are transported by ship, Magoon noted a variety of other strategic exposures that investors could take advantage of via SEA.

For one thing, the fund has an attractive dividend yield—the index's yield is in excess of 8%. Financials, usually a big sector for dividend-oriented investors, have been underperforming the general market lately, but the same is not true of shipping stocks. SEA also provides exposure to companies in smaller markets such as components from Greece, the Bahamas and Bermuda, which are often classified as emerging or frontier markets, that might not find their way into an investor's portfolio otherwise.

The shipping industry is also fairly volatile, Magoon said, and traders may be drawn to the fund based on that.

Magoon compared the shipping industry to the suppliers of picks and axes during America's Gold Rush. While gold miners may have done well, the supporting industries did even better. "[Shipping companies] are really the backbone, or the infrastructure, of the world's economy," he said.

Shipping Looming Larger? 

And as globalization continues, Magoon said the shipping industry will become even more important.

"As more and more trade barriers come down, as many of the frontier countries and BRIC countries continue to march toward developed market status, there will be more need for ships and more goods being transported across the world. Shipping is a fairly efficient way of doing that," he noted.

The index has certainly done well for the past five years, showing positive performance for the first seven months of 2008, up 0.82%, while many other equity indexes have been in the red. Based on backtesting, it's had positive returns since 2004 and was up more than 50% in both 2004 and 2007. But therein lies part of the problem with this fund—it's being released on the heels of what looks to be a significant run-up.

SEA charges an expense ratio of 65 basis points (0.65%).

Read the prospectus for SEA here 

 


Top 10 Companies

Component

Weight

Teekay Tankers Ltd.

4.04%

Star Bulk Carriers Corp.

4.03%

Diana Shipping Inc.

4.02%

Euroseas Ltd.

3.99%

Golden Ocean Group Limited

3.97%

Knightsbridge Tankers

3.97%

Frontline Ltd. Ord

3.94%

DHT Maritime, Inc.

3.91%

Paragon Shipping Inc.

3.88%

OceanFreight Inc.

3.85%

 

Country

Weight

Greece

35.30%

United States

19.08%

Bermuda

15.37%

Bahamas

10.09%

Japan

7.34%

Jersey

3.91%

Hong Kong

3.80%

China

2.62%

Singapore

2.48%

 

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