Financial planners and economists generally agree that asset diversification can reduce portfolio volatility without risking returns.
For most individual investors, this concept boils down to a simple rule: Don’t put all your eggs in one basket.
In this section, we regularly present various exchange-traded funds (ETFs) that can diversify readers‘ investments. Today we will focus on two niche funds.
1. Breakwave Dry Bulk Shipping ETF
- Cost : $ 16.50;
- Annual trading range : $ 3.75-20.84;
- Investment costs : 3.32%.
The Breakwave Dry Bulk Shipping ETF (NYSE: BDRY ) is currently the only freight futures fund specializing in dry bulk cargo. The average settlement period for freight futures is three months.
When transporting bulk cargo, ships of the following categories are most often used:
- Large-tonnage vessels with a carrying capacity of 180,000 tons (mainly used for long-distance transportation of iron ore);
- Panamax class tankers with 75,000 dwt (considered the industry’s workhorse and mainly used to transport coal and grain; can cross the Panama Canal);
- Ships of the “Supramax” class with a carrying capacity of 55,000 tons (the most versatile, since they can enter small ports).
Initially, the fund’s portfolio consisted of 50% of freight futures for large vessels, 40% of Panamax contracts, and the remaining 10% of Supramax contracts. In December, the ETF is rebalanced annually. BDRY was launched in March 2018, and its assets are estimated at $ 50.4 million.
Sea transportation is an important segment of the transport sector, and the cost is determined by the balance of supply and demand. Commodity trading (primarily oil , iron ore and coal) is heavily dependent on shipping. On the demand side, China remains the main destination for bulk carriers.
Freight rates have recently risen sharply as the Suez Canal (which carries more than 10% of world trade) was blocked by the 400-meter ship Ever Given. As noted by the media:
“The 200,000 tonne vessel operated by Taiwan’s Evergreen Marine is one of the largest container ships in the world: it is about the length of four football pitches and can carry around 20,000 containers.”
As a result, hundreds of ships “got stuck in a traffic jam”, awaiting their turn to pass the 193-kilometer channel.
These incidents that interrupt supply chains lead to higher freight rates. As a result, BDRY has also risen more than 10% over the past few days. Over the past year, the fund has added about 240% and recently renewed its 52-week high.
The blocking of the Suez Canal became a force majeure, which was resolved quite quickly. Therefore, we can expect profit taking on BDRY. It should also be remembered that this is a small, niche, and quite expensive (in terms of fees) ETF. However, the fund is suitable for investors who consider the fundamental picture favorable for the transport of dry goods.
2. Emles Luxury Goods ETF
- Cost : $ 28.21
- Annual trading range : $ 24.92-29.05;
- Investment costs : 0.60%.
Emles Luxury Goods ETF (NYSE: LUXE ) invests in companies that make money from luxury goods. The fund debuted in November 2020 and now manages a $ 2.8 million portfolio.
According to forecasts, “by 2027, the volume of the global luxury goods market will grow from USD 257.26 billion to USD 352.84 billion last year; the average annual growth rate during this period will be 4.6% ”.
Research shows that companies offering luxury goods and related services are paying increasing attention to two segments of consumers: high-earning but still poor people, and younger segments of the population who will become consumers of luxury goods in the future.
As a result, companies will be able to offer goods and services at a higher premium.
LUXE invests in 47 components of the Emles Global Luxury 50 Index. The list of investments is topped by Volkswagen (OTC: VWAGY ), Daimler (OTC: DDAIF ), Apple (NASDAQ: AAPL ), Diageo (NYSE: DEO ) and Estee Lauder (NYSE: EL ).
Since the beginning of 2021, the fund has gained approximately 3.5%. It is suitable for investors who want to invest part of their funds in a fairly niche area.