Shipping stocks may still be in the doldrums in the view of many investors, but hedge funds have bet at least $675-million on signs of renewed buoyancy in the industry.
Hedge funds made initial forays into shipping stocks in the third quarter of 2017, but significantly stepped up their bets in the final three months of the year, U.S. Securities and Exchange Commission filings compiled by Symmetric show.
“Shipping has been in a terrible trough for a number of years,” Chris Walvoord, global head of hedge fund research at investment consultant Aon Hewitt, said.
“Hedge funds are starting to see opportunity … and are calling the bottom on these companies and there are at least a couple out there getting into this space.”
The move by hedge funds comes as signs of a fragile recovery in segments of the global industry are appearing, after a near-decade long slump caused in part by a glut of ships ordered.
“You’re looking, over the next two years, for these stocks (in shipping) to rise 50 to 100 percent,” said William Homan-Russell, head of shipping at $1.5-billion hedge fund and shipping investor Tufton Oceanic.
“When adjusting for our estimated shipyard costs, share prices are at the lowest prices they’ve been since 1999.”
HIGH AND DRY
Dry bulk shipping – one of the hardest hit parts of the industry – is expected to witness better prospects as fleet growth slows and an expected pick up in demand for commodities such as coal, iron ore and grains bolster employment for bulker vessels.
By contrast, oil tankers are likely to see tougher times for now with weak freight rates hitting bottom lines of operators.
Hedge fund ownership of Nordic American Tanker, which ships oil, for example, rose to 27 per cent at year-end, from 2.4 per cent at end-September, according to the data from Symmetric, which tracks investment funds. Data for earlier periods was not immediately available.
And ownership by hedge funds of Dryships Inc, which is active in dry bulk, tanker and offshore shipping markets, meanwhile, rose to 80 per cent, from 10.3 per cent.
Hedge funds had invested $308-million in Kirby Corp, $26-million in Nordic American Tanker and $9-million in Dryships.
Dry bulk firm Golden Ocean and oil transporter Teekay Tankers were also popular like Ship Finance International, which has a diversified fleet, the data showed.
Funds had also invested $35-million to their holdings of Golden Ocean and $77-million in Ship Finance International.
Greywolf Capital Management, which initially invested in Tanker Investment before it merged with Teekay Tankers, is now among the hedge funds holding a combined $39-million in Teekay stock, and is bullish for the sector’s prospects.
“We’re starting to see fundamental improvement in many shipping markets with rates moving up, not because of temporary events, but rather as a result of a true balancing of supply and demand,” a spokesman for Greywolf said.
“With global growth accelerating, this an industry we continue to focus on and that should deliver highly attractive returns in the coming years.”
A spokesman for Blue Mountain declined to comment.
Some hedge funds have started moving into liquefied natural gas (LNG) tanker stocks, investing $4-million in Dynagas LNG Partners, and $62-million in Golar LNG Partners after pulling back from the sector in the preceding three months.
Although other investors pulled back from LNG stocks, a pick up in transport demand has helped the outlook for vessel owners in the LNG sector.
Did you subscribe for our daily newsletter?
It’s Free! Click here to Subscribe!
Source: The Globe and Mail
