Thematic and niche ETFs can help investors express a lot of things, including a bullish or bearish thesis on weather patterns. One of the more interesting themes recently gaining traction is the possibility of a so-called “Super El Niño,” and a potential beneficiary could be the Breakwave Dry Bulk Shipping ETF (BDRY), writes Tony Dong, lead ETF analyst at ETF Central.
For those unfamiliar, El Niño is a naturally occurring climate pattern characterized by unusually warm sea surface temperatures in the central and eastern Pacific Ocean. Those warmer waters alter atmospheric circulation patterns across the globe, affecting everything from rainfall and drought conditions to hurricane activity, agricultural yields, energy demand, and commodity prices.
Breakwave Dry Bulk Shipping ETF (BDRY)
A Super El Niño is the rare extreme version, typically involving much larger temperature anomalies that create more severe knock-on effects around the world. And ETFs allow you to build exposure to industries, commodities, and sectors that could either benefit from or be harmed by the economic effects of a major El Niño event.
One of the lesser-known consequences of a major El Niño event is its impact on rainfall patterns across Central America. Extended drought conditions can lower water levels in critical transportation bottlenecks, most notably the Panama Canal.
When water levels fall, canal authorities may be forced to limit the number of daily vessel transits or impose draft restrictions on ships passing through the system. The result is effectively a reduction in available shipping capacity.
BDRY gains exposure through freight futures contracts tied to global dry bulk shipping routes. One notable detail is that approximately 40% of the portfolio consists of Panamax 4TC contracts, which track the largest class of dry bulk vessels capable of transiting the Panama Canal.
The ETF has already benefited from broader disruptions to global shipping markets this year, although not nearly to the same extent as tanker-focused freight strategies tied to oil transportation. A severe El Niño could create a separate catalyst altogether.
This isn't a direct weather trade, but it is one of the cleaner second-order effects I can think of. If a Super El Niño creates meaningful disruptions to one of the world's most important maritime chokepoints, BDRY is one ETF I'd have on my watchlist.
