First freight futures ETF launches

Mar 23rd, 2018 | By | Category: Commodities

Breakwave Advisors, a US-based commodity trading advisor, has partnered with ETF Managers Group to launch the Breakwave Dry Bulk Shipping ETF (BDRY US).

John Kartsonas, founder and managing partner of Breakwave Advisors.

The ETF provides investors with exposure to a niche component of the commodities industry: dry bulk shipping space.

Such space is used to transport major hard commodities such as iron ore, coal, grain, and other commodities such as bauxite and phosphate, minerals, fertilizers and forestry products.

Dry bulk shipping space is traditionally traded in the futures market similar to other commodities, and its price is generally influenced by the factors affecting the supply and demand of these hard, dry commodities.

In this way, an investment in dry bulk futures offers investors a strong cyclical play.

The fund focuses on long exposure to dry bulk shipping through a portfolio of near-dated freight futures contracts on dry bulk indices. Investors would previously have had to trade the futures directly to gain exposure to this unique segment.

John Kartsonas, founder and managing partner of Breakwave Advisors, commented, “Freight futures have historically exhibited strong cyclical returns, but for most investors it has been a very hard-to-access market. For the first time, through BDRY, a wide range of market participants can now directly access the dry bulk market using a simple, transparent, equity-like investment product.”

“Dry bulk shipping is an essential part of the global commodity markets and a major beneficiary of infrastructure spending,” Kartsonas added. “A highly cyclical industry, dry bulk shipping is in an upturn again following several years of underperformance, in a strengthening commodity environment supported by improved industry fundamentals.“

The fund holds freight futures with a weighted average of approximately three months to expiry, using a mix of one-to-six-month freight futures. This is designed to reduce the effects of rolling contracts by using a laddered strategy to buy contracts while letting existing positions expire and settle in cash.

The fund will progressively increase its position to the next calendar quarter three-month strip while existing positions are maintained and settled in cash. The initial freight futures allocation will be 50% Capesize contracts, 40% Panamax contracts and 10% Supramax contracts, rebalancing annually.

The fund is listed on NYSE Arca and has a somewhat punchy expense ratio of 1.72%.

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