At SEA with Guggenheim Shipping

04/11/2017 2:50 am EST


Glenn Rogers

Contributing Editor, Internet Wealth Builder and The Income Investor

Glenn Rogers, private equity and venture group specialist — and contributing editor to Internet Wealth Builder — reviews an opportunity in shipping, an investment idea inspired by his visit last week to the Panama Canal.

Having watched the endless parade of container ships moving through the Panama Canal locks, it was impossible not to think about ways to play global shippers.

This has been a very difficult market segment, even worse than the airlines, which have also been historically volatile. The companies in this business have generally paid high dividends but many have gone out of business.

Basically there are three major kinds of shippers: dry bulk, which handles grains and raw material, oil tankers and container ships. Shipping rates are generally affected by the ups and downs of the global economy, with an emphasis on China and the price of oil and natural gas.

For tax reasons, shipping firms are often headquartered in Bermuda, Panama, and other tax friendly locales. The Greeks have always been big on shipping and that continues to be the case.

Tax friendly locales aren't always the most transparent from a financial oversight point of view, which is why picking winners and losers in this sector can prove difficult.

That's why I'm recommending an ETF that holds a basket of these issues, so any one actor in this volatile group won't crush you. The stocks include representative issues from all three of the shipper types outlined above, with some logistic and shipping companies throw in for good measure.

This fund is called Guggenheim Shipping ETF (SEA). It holds a portfolio of 27 securities with global exposure. The largest position is AP Moller-Maersk (AMKBY), which represents about 20% of the assets.

Geographically, 41% of the portfolio is in U.S. companies, 22%, in Denmark, and 13% in Japan. Other countries represented include Norway, Hong Kong, Greece, Belgium, and Singapore.

The ETF attempts to track the performance of the Dow Jones Global Shipping Index, less fees and expenses. The managers try and choose the most stable companies in the group, with an emphasis on those that can afford to pay dividends. The net expense ratio is 0.65% and the fund has US$119 million in assets under management.

The fund pays quarterly distributions and the amounts can vary significantly. The total 2016 payout was $0.736 per unit (figures in U.S. dollars), which would translate into a yield of 6% at the current price. However, there is absolutely no guarantee that the 2017 payment will be that high.

The units are way down from the highs of three years ago but the fund seems to have formed a nice base over the last few months and appears ready to break out.

Back in 2010, the managers actually closed down the fund but it is now back and I believe it's a good way to play a global economy that seems to be gaining some momentum.

I think the overall sector is worth a look if you're an aggressive investor. If you are generally bullish about the prospects over the next couple of years, this would be a good ETF to hold.

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