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John Kartsonas, Breakwave Advisors

Shipping ETF enjoys ups and downs on waves of volatility

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One ETF dominated performance over this year on the weekly trackinsight data published in ETF Express, and that was Breakwave Advisors’ Breakwave Dry Bulk Shipping ETF (NYSE ARCA: BDRY) launched in 2018.

ETF Express covered the background to the launch of this innovative product back in 2018

but its time has come this year, with John Kartsonas, founder and managing partner at Breakwave Advisors, confirming that year to date performance has just hit 300 per cent.
The product, as one might expect, is volatile, with a 20 per cent up and down range of trading over the last six months, but the dynamics behind this most thematic of ETFs, shipping, are undeniable.

Kartsonas was a Senior Transportation Analyst at Citi, a PM at Sea Advisors Fund and Senior PM at the Carlyle Group before starting his own firm.

BDRY has USD94 million in assets, due, he believes, to people being a little wary of a fund with this much volatility, but he does point out that lots of volatile funds gain the most assets as the price falls.
“It’s a very unique product,” he says. “If you think about it, it is the only ETF globally that holds unlisted futures because we hold futures on freight and shipping which are not easily accessed by investors.”

An investor in a commodity ETF can go and buy the underlying in gold or oil but with this ETF, the investor does not have access to freight futures. “Very few companies around the world have access to this market so the idea was to open the market to the investors, and we wanted to do that by allowing access through the simple route of buying one stock, hence the ETF.”

The pandemic has seen shipping enjoying an extraordinary revival. “Shipping has done very well this year,” Kartsonas says. “There has been a very big push on the demand side of shipping as the global economies started to reopen at the same time. When things started to improve, everyone came out and started buying stuff.”

At the same time, because of the virus, there have been significant constraints on the supply side of shipping, with ships stuck in ports because of quarantine requirements or crew change restrictions.

“If you put the two together, then pricing goes up,” Kartsonas says.

Dry bulk shipping is the industry which carries raw materials and commodities from iron ore, to boal to bauxite, to grains such as corn or wheat.

“There are lots of different fundamentals for each sector but there has been a big surge in demand for goods combined with a shortage of goods. The result is a risky, volatile asset and this is probably the most volatile ETF out there.”

Kartsonas believes that his investors are those prepared to take a bigger risk for a larger return. “It will be someone with uncorrelated assets who understands that this is a market with its own fundamentals and someone who is not willing to invest in equities which have their own idiosyncratic behaviour. It’s a pure shipping product.”

There is a new product on the block and other new products planned for next year.

“There is a market for products like these that are obviously not mainstream products, but very niche, and that is where you get the competitive advantage.”

 

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