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Wednesday, October 13, 2021
Global Supply Chain Nightmare Looking under the Hood
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* The flyer is for information purposes only with no specific BUY | HOLD | SELL recommendation on any of the mentioned ETF’s.
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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 %|
$ 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
Data Source: Bloomberg
Data as of: 13/10/2021
Arun Leslie John
Chief Market Analyst
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