Behind the Tanker Shipping ETF Returning 450% YTD

There’s a commonality among nearly all the top-performing ETFs so far this year: oil.

The top 10 exchange-traded funds by year-to-date returns are all up more than 50%, with the Breakwave Tanker Shipping ETF (BWET) leading the pack at about 450%, per data from Morningstar Direct. That ETF in particular, which invests in crude oil tanker freight futures rates rather than oil itself, has also returned roughly 850% over 12 months. While money has been flowing into oil-related ETFs, investors should be mindful of the volatility and the evolving situation globally. 

“This is one part chasing momentum, one part a realization that many investors have had no exposure to energy and commodities,” said Todd Sohn, chief ETF strategist for Strategas. “You haven’t necessarily needed them in the initial stages of AI, but once supply chains become affected, that becomes an important focal point. Energy and materials were a combined 5% of the S&P 500 recently, so now there’s a sugar rush to up that exposure via sector and commodity funds.”

Strait Talk

The Iran war and the effective closure of the Strait of Hormuz have sent oil prices skyward, prompting high engagement with traders. The BWET fund, for example, has not only increased its assets about 10-fold since the beginning of the year, to about $25 million, but its daily trading volume has also been anywhere from about 25% to 50% of assets over the past couple weeks. “There has been quite a bit of interest. I’m more impressed with the daily trading volumes than the AUM, especially considering that shipping is not a mainstream industry,” said John Kartsonas, founder of Breakwave Advisors. “The fact that you cannot ship oil, or ship very little oil, from the Middle East to the outside world means that, if you are willing to do it, you have to pay a very high price. Oil, on the other hand, reflects the price of oil globally.” 

BWET, along with its companion, the Breakwave Dry Bulk Shipping ETF (BDRY), are volatile, and the recent performance isn’t necessarily surprising, Kartsonas said. “These are cyclical industries,” he said. “In shipping, these are the types of returns you would expect, because it is a very volatile market.” The ETFs come with fees of 3.5%, which reflects daily futures trading in an industry that lacks electronic processes; transactions are made over the phone, he said. “It’s almost like a private market.”

When Oil Tanks: But oil may not be the safest investment choice at the moment, said Julia Khandoshko, CEO of Mind Money, a European broker. After President Trump pushed back a deadline on attacking Iran’s power plants, “prices have already started to decline, so it’s unclear how sure you can be in this commodity,” she said in a statement. “This volatility may be a good thing for those who are looking for short-term benefits, but it may not be suitable for long-term investment because oil is also a mirror of the state of the economy.”