Shipping stocks are a wildly volatile group as they seem to feel every bump in the movement of the Baltic Dry index, which after being a one-way trade for a couple of years has endured some nasty corrections in the last year.
The segment's volatility is neither good or bad. Shipping stocks can be thought of as a play on facilitating the movement of goods and commodities, among other things, which have contributed to the improving quality of life in many countries around the planet.
If you think the movement of
is likely to be an important global theme then the new
Claymore/Delta Global Shipping Index ETF
allows access without the single stock risk.
The accompanying year-to-date chart shows the four largest holdings in the fund as of Aug. 25:
. The four stocks have standard deviations ranging from the low 30s to the low 50s compared with 23% for the index. While that is lower than the individual stocks, as you might expect, the volatility for the MSCI World Index (the benchmark used in the comparison by Delta Global) was 10.05%.
SEA should be expected to be plenty volatile but less so than owning an individual stock in the space.
If you're somewhat familiar with the group it won't be a surprise that Greece has the largest country weighting at 35.3%, followed by the U.S at 19.1%, and Bermuda at 15.4%.
Some nuts and bolts of the ETF include a fee capped at 0.65%, and a weighted average market cap of $2.9 billion (not a surprise the fund would lean smaller). The ETF also stands to have a very high dividend yield.
Many shipping companies have very high, but ever changing, payouts. Looking back, the index yield has been 8.2%; less the fee implies a yield of about 7.5%. While I think a high dividend is a good bet, 7.5% may or may not stand up depending on how things unfold.
The methodology for building the index involves screening for related companies, subject to market cap and trading volume standards, and then the components are dividend weighted up to the point that no stock will be more than 4% of the fund at the time of the annual rebalance.
It is hardly a unique thought that when the global economy is healthy more goods are being shipped around the planet -- this is the epitome of commerce. The outlook for the global economy for the near term is murky at best which might be playing out in the price action of many of the stocks in the fund. The uncertainty is resulting in more volatility.
The biggest risk with the fund is probably poor timing. Until the market begins to anticipate a recovery, the volatility is likely to persist and a healthy yield may not offer a lot of solace in the face of a big decline.
Again, this doesn't make the fund good or bad. It is simply a matter of gaining exposure to an important and popular segment of the stock market.
As for disclosure, I am affiliated with greenfaucet.com, a subsidiary of Delta Global Advisors. I have no interest, financial or otherwise, in the success or failure of this fund.
At the time of publication, Nusbaum held no positions in the stocks mentioned, although positions may change at any time.
Roger Nusbaum is a portfolio manager with Your Source Financial of Phoenix, and the author of Random Roger's Big Picture Blog. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Nusbaum appreciates your feedback;
to send him an email.