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Trading in financial markets involves significant risk of loss which can exceed deposits and may not be suitable for all investors.
Before trading, please ensure that you fully understand the risks involved
Trading in financial markets involves significant risk of loss which can exceed deposits and may not be suitable for all investors. Before trading, please ensure that you fully understand the risks involved

Wednesday, October 13, 2021

Global Supply Chain Nightmare Looking under the Hood

By Century Financial in Investment Insights

Global Supply Chain Nightmare Looking under the...
Global Supply Chain Nightmare-Looking under the Hood

* Trading in financial market carries risk and can result in loss of capital.
* The flyer is for information purposes only with no specific BUY | HOLD | SELL recommendation on any of the mentioned ETF’s.


The product and investment ideas do not consider the risk profile and financial position of the recipient and may not be suitable for everyone. Trading in financial markets and use of margin involves a significant risk of loss, which can exceed deposits. Please read the complete disclaimer carefully.

The global supply chain crisis is showing no signs of getting resolved any time soon. Semiconductor chip shortages, port congestions, and lack of delivery truck drivers – These are just some of the factors that have wreaked havoc across this space. The crisis is ramping up the end prices global consumers pay for the critical day-to-day needs of life. This has become a more significant problem for the global central banks who want to be primarily seen as less aggressive in their path towards balance sheet normalization.

So severe is the threat that this week, the IMF downgraded 2021 US growth by 1 % point on the back of the supply chain disruptions and weakening consumption – itself driven by bottlenecks. Rating agency Moody’s has pointed out that the weakest link may be the shortage of truck drivers for the UK. Corporate executives are reportedly preparing for the worst, with the overall mood largely somber. In the US, congestions at major ports continue. Companies like Target are chartering smaller ships that are being re-routed to smaller, less busy ports in the country.

With the crisis likely to stay with us for a considerable amount of time, we look at a few ETF’s that are expected to ride along with the ongoing theme present in the global markets.

Sr No ETF Ticker Code Last Price 52 W High 52 W Low AUM ( $ Million ) YTD Gains%
1 i-Shares US Transportation ETF $ IYT $ 251.59 $ 281.53 $ 192 1,585 14.82 %
2 First Trust Nasdaq Transportation ETF $ FTXR $ 31.75 $ 35.13 $ 22.92 1,108 13.71 %
3 SPDR S & P Transportation ETF $ XTN $ 88.63 $ 92.40 $ 56.65 555.8 25.39 %
1 Break wave Dry Bulk Shipping ETF $ BDRY $ 37.63 $ 42.22 $ 6.10 126.4 370 %

Source: Bloomberg

$ IYT: i-Shares US Transportation ETF

The fund provides exposure to a benchmark that represents the transportation industry of the US. $ IYT is heavily exposed to two corners of the transportation market, with railroads and trucking making up the two biggest sections by far. For investors looking at transportation from a business perspective, this fund represents a solid choice. Amongst the top 3 holdings of the ETF include – Union Pacific Corporation, United Parcel Service Class B & CSX Corporation.


Source: Bloomberg | Duration: Last 5 Years

$ FTXR: First Trust Nasdaq Transportation ETF

The ETF seeks to match the performance of the Nasdaq US Smart Transportation Index. The Nasdaq US Smart Transportation Index is a modified factor weighted index, designed to provide exposure to US companies within the transportation industry. FTXR has the heaviest allocation in the Industrials sector -about 81.60% of the portfolio-while Consumer Discretionary and Energy round out the top three. Amongst the top 3 holdings of the ETF include – Expeditors International of Washington, Ford Motor Company & Old Dominion Freight Line.


Source: Bloomberg | Duration: Last 5 Years

$ XTN : SPDR S & P Transportation ETF

The ETF seeks to track the returns of the S & P Transportation Select Industry Index. The Index includes exposure to the following sub-industries - Services, Highways & Rail Tracks, Marine, Marine Ports & Services, Railroads, and Trucking. Amongst the top 3 holdings of the ETF include – State Street Institutional Liquid Reserves Fund, Avis Budget Group, ArcBest Corporation.


Source: Bloomberg | Duration: Last 5 Years

$ BDRY: Break wave Dry Bulk Shipping ETF

The ETF invests in a mix of FFAs (Forward Freight Agreements) tracking rates in the Capsize, Panamax (65,000-90,000 DWT), and Supramax (45,000-60,000 DWT) bulker categories. Unlike major shipping and container stocks that may trade below their NAV’s, the tracking error is considerably low with this ETF due to its direct exposure to FFA’s. These FFA’s typically settle against international benchmarks like Baltic Dry Index. $ BDRY is open-ended, implying that any further rise in institutional investor interest could see more creation and issuance of the ETF units. Dry bulk – iron ore, coal, grains, and other mineral and agricultural commodities – is by far the world’s largest cargo segment.


Source: Bloomberg | Duration: Last 5 Years

Risks and Assumptions for Back-tested trading strategies
The risks and assumptions listed here are not intended to be an exhaustive summary of all the risks and assumptions involved.
The strategy might suffer from look-ahead bias which occurs due to the use of information or data in a study or simulation that would not have been known or available during the period being analyzed. This can lead to inaccurate results in the study or simulation.
Future price movements may not be exactly the same as the historical price movements and this could lead to variation in performance.
Testing can sometimes lead to over-optimization. This is a condition where performance results are tuned so high to the past they are no longer as accurate in the future.
The model assumes no slippages in trading. Slippage refers to the difference between the expected price of a trade and the price at which the trade is actually executed.
Drawdowns in actual trading can be higher than the tested system and losses could be significant in the event of leverage.
Unforeseen events can lead to variation in performance from the tested trading strategy.
The tested result has been computed with price feeds available from Bloomberg.
The testing environment has not considered transaction or any other costs.
Trading indicators used for the purpose of testing has been provided by Bloomberg.
The strategy might suffer from data mining fallacy, selection bias and backfill bias.

Data Source: Bloomberg
Data as of: 13/10/2021

Arun Leslie John
Chief Market Analyst

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