S&P GSCI Shipping Indices In Portfolio Management

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By Nikos Nomikos

On Aug. 1, 2022, S&P Dow Jones Indices (S&P DJI) launched a bid of S&P GSCI Freight Indices, nan first investible shipping indices of their benignant successful nan marketplace and an description of nan single-commodity offering of indices based connected the S&P GSCI. Refer to this blog for inheritance connected nan indices.

Freight rates person historically enjoyed higher mean returns and are much volatile compared to equity, fixed income and different commodities (Exhibit 1). Interestingly, Panamax freight rates are much volatile than nan prices of nan commodities they typically carrier (mostly cultivation commodities and business metals). Monthly and quarterly freight rates person akin statistical properties, reflecting nan communal fundamentals that thrust nan marketplace and each sector. At nan aforesaid time, nan beforehand extremity of nan futures curve is much volatile and is driven by short-term factors, including repositioning booms and location supply-demand imbalances, while semipermanent rates are little delicate to those events and frankincense little volatile.

Cumulative returns propose that Panamax and Capesize freight rates person historically outperformed different commodity indices arsenic good arsenic different plus classes, connected nan backmost of a very beardown and buoyant freight marketplace successful 2020 and 2021 (Exhibit 1).

As world investors progressively activity to diversify their investments and look for replacement vehicles to pat into niche marketplace segments, nan S&P GSCI Freight scale bid whitethorn beryllium a meaningful gauge of world economical activity, seaborne waste and acquisition and individual commodity, and geographic marketplace dynamics.

Freight rates bespeak nan equilibrium betwixt proviso and demand. Although beardown request for commodities and subsequently precocious commodity prices whitethorn trigger stronger request for shipping services, nan proviso of shipping services moves independently. As a result, freight rates tin autumn successful an situation of expanding commodities demand, if nan proviso of vessels grows faster than nan request for shipping services. Equally, freight rates whitethorn summation successful an situation of debased commodity demand. For those reasons, nan relationship betwixt freight rates and different commodities is historically weak.

This is suggestive of freight rates contributing to nan diversification properties of a emblematic portfolio consisting of commodities and stocks and this is confirmed visually by looking astatine nan style of nan businesslike frontier and nan position of nan Panamax and Capesize guidelines assets, particularly nan quarterly ones (Exhibit 3).

Global shipping is simply a unsocial plus class. In this blog, we demonstrated nan debased relationship betwixt freight rates and different commodities and nan imaginable benefits of including freight successful a diversified portfolio. The preamble of nan S&P GSCI Freight Indices offers nan opportunity to investors to entree this unsocial plus people and beryllium capable to see products search these indices successful their portfolios.

Disclosure: Copyright © 2022 S&P Dow Jones Indices LLC, a section of S&P Global. All authorities reserved. This worldly is reproduced pinch nan anterior written consent of S&P DJI. For much accusation connected S&P DJI please sojourn www.spdji.com. For afloat position of usage and disclosures please sojourn Terms of Use.

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Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

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