Shipping Stocks Lead Market Gains (SEA)


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 SEA was up one percent in early trading as it hits a new multi-year high.

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 high.

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 market.

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 stocks. 

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Posted In: Sector ETFsSpecialty ETFsETFsETFshipping
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