The Guggenheim Shipping ETF (SEA) is 28.5% this year, a gain that while impressive, lags the S&P 500. That is still better than the 11.8% gain SEA posted last year and the ETF’s recent price action could be a sign it is poised to surge next year.
SEA is up 6.3% in the past month, aided by a substantial move in the Baltic Dry Index. However, the association with the Baltic Dry Index is one of the biggest misnomers surrounding SEA. The BDI is not a stock index, rather it is an assessment of the price shippers are charging on a given day to move to coal, grains and related fare. [Shipping ETF Breaks Out]
Still, SEA is in rally mode. “The strong volume confirms the recent breakout and signals that SEA may be ready to move significantly higher through the first six months of the new year,” according to Deron Wagner of Morpheus Trading Group.
SEA currently trades around $21.40, its highest levels in more than two and a half years. If the ETF can muster a close above $22, it would be the first time since the second quarter of 2011.
SEA’s technical rally is rooted in fundamentals. For example, daily charter rates for Suzemax ships have reached $60,000, a nice sum for dry bulk shippers that own five, 10 or Suzemax vessels. On the other hand, there is some risk with dry bulk shippers given their large debt loads the companies acquired during the financial crisis.
“These shipping companies are also larded up with debt (Star Bulk has a debt-to-equity ratio of 1.66, with it being 2.08 for Eagle Bulk and 11.44 for FreeSeas), according to TheStreet.com.
SEA does not feature any of those companies among its 27 holdings. The ETF’s largest holding is Denmark’s A.P. Moller – Maersk, which operates across multiple businesses, not just shipping. The company had $59 billion in revenue in 2012.
SEA is also home to Teekay LNG Partners (TGP), a shipper of liquefied natural gas, and Teekay LNG Partners (TOO), a provider of offshore oil storage services. The average dividend yield on those stocks is 6.4%.
Guggenheim Shipping ETF
ETF Trends editorial team contributed to this post.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.