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| John Banaszkiewicz, managing director of Freight Investor Services and Forward Freight Agreement Brokers Association chairman, says interest in freight futures has been rising Photo: Burnley FC |
SEC filing by New Jersey group sets scene for growing investor interest in freight futures
A major revamp of the Baltic Dry Index
(BDI) to be launched in the new year is opening the possibility it
could be used as the platform to launch Exchange Traded Funds (ETFs).
Plans
to make the BDI more accurately reflect the volumes of cargo being
carried by each vessel sector were revealed this week. It also emerged
that a prospectus has been filed separately with the US Securities &
Exchange Commission to issue shares in an ETF managed and controlled by
New Jersey-based ETF Managers Capital.The fund, if it goes ahead, will be known as the Breakwave Dry Bulk Shipping ETF and is designed to give investors exposure to the daily change in the price of dry bulk freight futures by tracking specifically the Capesize 5TC, Panamax 4TC and Supramax 6TC indices.
This fits well with BDI changes proposed by the Baltic Exchange, which would see contributing time charter averages at 40% capesize, 30% panamax and 30% supramax from 2 January 2018.
John Banaszkiewicz, managing director of Freight Investor Services and chairman of the Forward Freight Agreement Brokers Association, told TradeWinds: “It is quite exciting that we may find other investors coming into freight on a long-only style ETF.”
ETFs have become hugely popular in recent years and, as well as tracking stock market indices, are also linked to commodities such as gold and iron ore.
The idea of an ETF based on the BDI has been floated previously but with the proviso that first there would have to be options traded on the futures market, which generated healthy daily liquidity.
It is understood the Baltic’s review focused on how the BDI could be changed to a product more useful to the commodity and financial markets, including pension funds and hedge funds.
In its current form, the BDI is not traded on any stock exchange but Banaszkiewicz says in future it could be traded like the former Baltic International Freight Futures Index.
A Baltic spokesman was unable to comment on the prospects of ETFs built around the BDI apart from saying: “The Baltic provides the assessments for products such as FFAs and ETFs to be created and used.”
The BDI changes, for which the Baltic says it hopes to get “positive” feedback from its members, include a recommendation that the handysize time charter average be removed. The panamax and supramax weightings would increase by 5%.
The Baltic has told members that the changes follow a review of all its dry indices and assessments in terms of route description, individual weightings and balance between the Atlantic and Pacific basins.
Banaszkiewicz says there has been rising interest in freight futures, which are used as a means of hedging exposure to the freight market by trading time charter and voyage routes.
He says higher dry cargo rates have seen volumes of dry FFAs rise 5% year-to-date, with panamaxes and supramaxes up 16% by volume. Capesizes are down 6.5%.
Banaszkiewicz notes that the average capesize rate last year was $7,388 but so far this year it is $13,987. Panamaxes have moved up from $5,562 to $9,529. However, this year’s volatility is much less. Capesize and panamax FFA markets can be traded out as far as 2024.
source: www.tradewinds.com