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Baltic Dry Index Outsmarts Wall Street – Top Bulk Shipping ETF to Buy

Baltic Dry Index Outsmarts Wall Street – Top Bulk Shipping ETF to Buy

Article Highlights:

  • If you took my advice to buy one particular bulk shipping ETF last month, you’re up 8% in six weeks!
  • But this exchange-traded fund has much higher to run due to two key factors.
  • Bulk shipping is the ultimate buying opportunity — and you can profit for months to come.

Last month, I told you a bit about one of the most hated, beaten-up sectors around: the shipping industry.

But as I pointed out, the industry is set to become a turnaround story as it benefits from two factors — shrinking fleets and the trade war impasse.

So I told you about the “ultimate contrarian tariff play.”

Specifically, I recommended buying shares of the Breakwave Dry Bulk Shipping ETF (NYSE: BDRY).

I hope you took my advice! If you did so, you’re up more than 8% in only six weeks’ time. That’s on top of a 50% rise in this exchange-traded fund (ETF) since the spring:

BDRY bulk shipping ETF

(Source: TradingView.com.)

But if you didn’t buy BDRY last month, you haven’t missed the boat on this opportunity quite yet.

I think it still has a long way to move higher from here. I expect it to hit $25 by early next year — which makes now the perfect time to buy in…

BDRY’s recent gains reflect the amazing changes going on in what’s called the Baltic Dry Index — a global measurement of what it costs to ship bulk commodities such as iron ore, wheat and coal from source to market.

It’s also a big reason why this really is the ultimate contrarian play on the U.S.-China trade standoff. It’s all about supply and demand.

If the two countries resolve their differences, global trade will improve, and shipowners will be able to charge higher rates to carry commodities — pushing an ETF like BDRY higher still.

But if the impasse drags on, shipowners will be forced to keep cutting back the size of their fleets — which puts a “floor” under prices in the BDRY ETF as well.

See, a decade ago, shipowners discovered they’d ordered far too many new vessels as the U.S. housing bubble burst, and a slowdown in the global economy took a big chunk out of global demand for ships that carried “dry bulk” cargoes such as iron ore.

Charter rates collapsed.

Even now, the Baltic Dry Index is down 50% from where it was in 2010. It’s down 80% from the giddy days of 2008 — just before the financial crisis struck — when shippers thought the global economic expansion would have no end, and that there was virtually limitless demand for the shipping of raw commodities.

But after more than a decade of tough times, the shipping industry has finally rebalanced itself.

Shipowners scrapped a record number of vessels in response. Not just dry bulk ships, but vessels of all kinds — tankers, container ships, you name it. Just in the dry bulk category, more than 500 vessels — roughly 5% of the world’s fleet — were beached and cut up for scrap between 2015 and 2018.

The second factor is a mandated switch in fuel. Right now, most ships burn low-grade oil known as “bunker crude.” By January 1, 2020, ships can only burn oil with a sulfur content of 0.5% (compared to as much as 3.5% now).

The new regulations, brought forth by the International Maritime Organization, compel shipowners to send even more vessels to the breakers’ yards or pull them out of service to install expensive sulfur-removing “scrubbers.”

Put these two factors together, and you have a good combination for the BDRY ETF to climb higher still: a smaller number of available ships, alongside demand for raw commodities that may not be growing much, but is not collapsing either.

Either way, I think it’s good to be an owner of the BDRY ETF here.

Best of Good Buys,

Jeff L. Yastine

Editor, Total Wealth Insider

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