Shipping ETF Falls On Hard Times As Commodities Dip

Stocks involved in the shipping industry can be one way to play the transportation sector and global economic expansion theme. However, the continued collapse in worldwide commodity prices and economic uncertainty in Europe has sent prices of these companies lower in recent months. 

Both the United States Oil Fund LP (ETF) USO and United States Natural Gas Fund, LP UNG are currently trading near their lowest levels of the year and putting pressure on commodity suppliers. Fears over a reduction in demand for transport of bulk goods are likely one of the driving forces in this new down-trend in shipping stocks.

Related Link: Commodity ETNs Not Crashing

Guggenheim Shipping ETF

The Guggenheim Shipping ETF SEA is the only industry-focused fund that tracks 26 companies engaged in the transport of goods and materials by sea. This ETF tracks the Dow Jones Global Shipping Index, which specifically excludes passenger stocks such as cruise ships.

So far this year, SEA has lost more than 10 percent despite the persistent strength in other areas of the transportation sector. From a short-term perspective, this ETF is now off more than 17 percent from its recent August high and continues to show signs of distress.

Comparison: iShares Transportation

By comparison, the iShares Dow Jones Transport. Avg. (ETF) IYT has gained more than 25 percent over the same time frame. IYT focuses on domestic airline, railroad and trucking companies. Marine transport makes up just 8 percent of this broader index.

SEA Is Global

SEA is a truly global fund, with the United States only making up 23 percent of the total holdings. Other top country weightings include Denmark, Bermuda and Greece. The global shipping and resources conglomerate AP Moeller-Maersk A/S-B is the largest holding in this ETF, with more than 18 percent of the total asset allocation.

Many of the underlying companies in SEA are high-dividend paying stocks, which combine to generate a current 30-day SEC yield of 3.83 percent. It’s worth noting that as the price of this ETF falls, the stated yield component will rise.

While the current environment may not be supportive for the companies in SEA, a pickup in commodity prices may spur additional interest in this sector as a global value opportunity at some point in the future.