This little-known ETF is up over 600% during U.S.-Iran war

Geopolitical tensions ripple through global energy markets and a deal to end the US-Iran war remains elusive. oil prices has been on the rise, but there’s an even better trade in the energy volatility that investors are flocking to: the cost of transporting crude oil.

Breakwave Tanker Shipping ETF (black-wetA little-known exchange-traded fund tied to crude oil tanker freight rates has risen more than 600% since the beginning of the year as war and disruptions to key sea corridors have sharply increased shipping rates.

“I started getting a lot of questions about this ETF; what’s in it? How does it perform?” VettaFi research director Cinthia Murphy said on CNBC’s “ETF Edge” this week:

BWET is a $30 million portfolio launched in May 2023 in an ETF market with over $13 trillion in assets.

Murphy explained that the scale of the move is forcing the market to rethink where the real leverage in energy lies. Rather than focusing solely on oil prices, which have been wildly volatile this year, investors may be looking at the infrastructure the world relies on to transport energy commodities.

“This is really a story about transportation costs,” Murphy said. “Whenever there is a major disruption in shipping…freight futures soar, and there is one ETF that captures that performance better than just about anyone.”

Murphy said that ongoing tensions in the Strait of Hormuz have proven to allow freight futures to rise rapidly, while markets are re-pricing the risk of transporting not only oil but also commodities through the region. For example, Baltic Exchange Rate Index It is up over 6% last week and 41% since the beginning of the year.

But “Oil moving is a really big story,” said Paul Baiocchi, head of fund sales and strategy at SS&C Technologies.

Oil prices this year according to the US Oil Fund (USO) is up nearly 90% as of Friday, and SPDR State Street Energy Select Sector SPDR ETF (XLE) rose more than 23% as energy stocks posted strong gains. But these movements appear modest compared to the spike in freight futures, and the rise in BWET began even before the start of war in the Middle East, with BWET up over 1,000% last year.

“Of course, oil prices have risen dramatically and the energy sector in general, energy equities, every part of the energy story has been a blockbuster year this year,” Murphy said. But he added: “BWET is really standing [out]”

Wall Street equity research teams are also paying more attention to rising tanker stocks.

At the same time, Baiocchi said the rally is linked to a broader theme playing out in global markets: underinvestment in energy infrastructure and the growing need to secure more resilient supply chains.

“[We talked] “It’s about the idea that even before the Iran conflict, a lot of these global commodity markets were worrisome, and if nothing else, that conflict was exacerbating a lot of the challenges,” Baiocchi said.

This includes not only oil transportation but also the construction of broader energy systems. “Countries and companies around the world will strive to find more stable energy sources,” he said.

While BWET gets a lot of attention, ETF experts warn that freight rates are inherently volatile and driven by short-term shocks. But as geopolitical conflicts continue to reshape global trade, more investors are looking beyond commodity prices and at the system that determines how commodities move into the market for investment profits.

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