Sunday, July 5, 2009

Shipping as an asset class

Antipodes recently reported here how shipping was showing signs of a recovery from the steep declines experienced in 2008. The Greek merchant fleet is the largest in the world totalling a fifth of the world's shipping fleet. After tourism, it is the second largest contributor to Greece's 240 billion euro economy, accounting for around 7% of output.

However, after an impressive rise off recent lows, the Baltic Dry Index (BDY) is currently stuck in a narrow range. Investors appear to be uncertain about the global economic recovery. The Baltic Dry Index is an indicator of chartering prices and one of the most popular leading indicators of global economic growth. Despite the uncertainty many are advising that now is a opportune time to enter the shipping market.

One way to enter the shipping market is via some form of fund structure. Investors have increasingly sought alternative asset classes such as private equity, hedge funds, real estate, commodities and timber in order to diversify their investments away from the traditional stocks, bonds and cash. The historically low Treasury yields on offer of the last eight years, and the steep equity market declines during the latterhalf of 2007 and then most of 2008, have made the search for lowly correlated assetclasses to traditional asset classes even more urgent.

JP Morgan Asset Management, a subsidiary of U.S. investment bank JP Morgan, released a report in April 2009 titled, "Shipping industry in the spotlight - a historic opportunity" that provides a relatively easy to understand overview of shipping's economics and its worth as an asset class. The report can be accessed

Of course, like all the advice or research expressed by investment banks one must be extremely wary
. JP Morgan Asset Management recently announced it would be raising USD$750 million for a distressed shipping fund. More details can be found here.

Source: JP Morgan Asset Management (Adrian Dacy), Bespoke, Antipodes


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  2. Hi, A.

    Economou's DryShips Inc. has really taken a pounding over the last year. It's currently trading around $5 (at one point, hovering near $1) from a high of just over $100! The company may look cheap, but buyer beware: the Balance Sheet does not look too good.