Choppy Economic Waters Can’t Stop SEA

by on August 9, 2010 | ETFs Mentioned:

Thanks to stubbornly high unemployment and low levels of growth forecast for much of the developed world, many are now worried about the possibility of deflation rather than inflation as the global economy comes ever closer to falling into a double dip recession. With interest rates and long-term yields at record lows, there is not much left for the Fed to do in order to try to stimulate the economy in the short-run as prices stay relatively flat for a variety of goods. Yet, despite this worldwide gloom over the health of the global economy, one sector has seen prices for its services surge higher in recent weeks: shipping.

One of the most important estimators of global shipping prices is the Baltic Dry Index, which uses a panel of international shipbrokers to provide daily assessments on over 50 dry and wet routes, weekly sale & purchase and demolition assessments, and daily forward prices. The index helps to influence the prices for a variety of common finished goods, due to the role of shipping as a primary means of transporting many vital raw materials. Coal and grain are two popular shipping items in particular for dry bulk carriers, so as the price of shipping these important commodities surges it can help to drive up the costs for food and energy, helping to fuel inflation. Although the index declined precipitously in the wake of the financial crisis, it appears to have bottomed out in the short-term, rising from 1,700 to 2,030 over the past four weeks [see ETF Plays On Planes, Trains, And Automobiles].

Meanwhile the HARPEX index, which tracks the price to ship containers, has also surged higher in recent weeks, nearly doubling since May 1st. The robust performance in both of these indexes suggests that shipping goods is getting increasingly expensive. These developments could add to profits for shippers despite the weakness in the global economy, potentially offering investors a way to play price inflation at one of its earliest levels. Should this trend continue, it could also create more demand for container and dry bulk ships, an event which would be bullish for the many hard-hit shipyards and shipbuilding companies around the world. Luckily for investors, there is an ETF that focuses on the crucial sector: the Claymore/Delta Global Shipping Index ETF (SEA).

SEA: Play Global Shipping Trends

After a brief hiatus due to a lack of participation in a vote to approve new agreements, SEA is back on the market, tracking the Delta Global Shipping Index. This index is designed to measure the performance of companies listed on global developed market exchanges within the maritime shipping industry. Delta Global Indices, LLC, the Fund’s index provider, defines the shipping industry to include companies within the following business segments of the maritime shipping industry: companies deriving a significant portion (in excess of 80%) of their revenues from the seaborne transport of dry bulk goods and the leasing and/or operating of tanker ships, container ships, specialty chemical ships and ships that transport liquid natural gas [also see Three ETFs To Bet On A Global Recovery].

The fund holds 30 securities in total with 78% of the assets going to firms outside of the U.S. In terms of market capitalization levels, SEA is relatively evenly split among sizes, with roughly one-quarter going towards large, medium, and micro sized companies; giant cap stocks receive no allocation and small capitalization level companies take up about 30% of total assets. The fund also offers some interesting geographic exposure; the U.S. makes up 22% of the assets, followed by Greece with 16% and even a 8% allocation to the Marshall Islands [try our new Country Exposure Tool, and for more ETF ideas sign up for our free ETF newsletter].

Disclosure: No positions at time of writing