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Maritime Financial Research

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Model Portfolio - Dec 20

Back in 2016, Drewry Maritime Financial Research (DMFR) launched a model portfolio - selecting stocks within the global maritime space to ensure a balanced approach to managing risk in a low return environment.


Recommended stocks are hand-picked based on the fundamentals of each entity, coupled with near-term triggers. The objective of the model portfolio is to generate optimum returns in conjunction with moderate risk.

DMFR Model Portfolio - Performance since inception
DMFR Model Portfolio - Performance since inception

December 2020

  • Drewry has maintained 11 stocks in its current model portfolio, same as in Jun’20, after all the shipping sectors have staged a recovery in 2H20. With lockdowns easing and trade normalising in many parts of the world, the shipping industry has responded, led by the container shipping sector. Meanwhile, the highest weight has been awarded to LNG shipping stocks (27%) closely followed by tanker shipping stocks (24%).
  • During the period (30 June 2020 to 4 December 2020), our portfolio gained about 28.5% in value while Dow Jones Global Shipping Index (DJSGH) gained over 52%. In comparison, the benchmark MSCI index gained about 20%. Shipping equities were hit hard in 1H20 largely due to demand-side constraints, but increasing stimulus packages and vaccine hopes have revived the industry.
  • Our previous edition released in July, weighed heavy on dry bulk shipping (27%) and tanker shipping (26%), in terms of allocation, to benefit from expected seasonal strength and geopolitical conditioning. On a weighted basis, tanker stocks returned 0.3% and dry bulk stocks returned 6.7% in this period. In the dry bulk sector, Star Bulk (SBLK) gained the most – 35% in absolute terms – translating into a weighted gain of 5.2%. In the tanker sector, DHT Holdings (DHT) was the frontrunner, gaining 7% in absolute terms which translated into about 0.5% in weighted terms.
  • BW LPG (BWLPG) was the star performer in our portfolio, returning a whopping 90% value gain or 6.3% weighted gain.
  • Star Bulk retrofitted its entire fleet with scrubbers and deployed it in the spot market. The cape-dominated fleet was hit when Baltic Capesize Index (BACI) dipped to sub-zero levels as operators struggled to break even. However, when the Chinese stimulus package came into play, and demand for iron ore rose, SBLK had plenty to celebrate. The spot market surged to its highest level for the year, and for 3Q20 the operator reported a net profit of USD 23.3mn. Based on these factors, the stock price has come off its multi-year lows and gained 35% since the release of our last edition.
  • While shipping is not the only sector that has seen recovery or surge on the global scale, it has been one of the sectors that benefitted the most, with the Dow Jones global shipping index (54%) comfortably outperforming the MSCI world index (19.9%). Our model portfolio too outperformed the MSCI world index, returning 28.5% in under six months.
  • DMFR’s model portfolio doubled between February 2016 and November 2019. However, COVID-19 impacted our portfolio which dropped significantly in value, and forced us to take a more conservative stand in the face of uncertainty posed by the pandemic. We therefore rebalanced to reflect a mix of low volatility stocks with strong fundamentals and predictable cash flows. Since its inception in February 2016, Drewry’s model portfolio has delivered 10.83% on an annualised basis, considerably outperforming the DJGSH which has delivered just 0.91%.
  • In this edition of DMFR’s model portfolio, we have continued to weigh on tanker shipping stocks and LNG stocks by 24% and 27% respectively. In tanker shipping, VLCC rates in particular are depressed and so are the stock prices. LNG shipping rates too are going through a trough, and we expect seasonal changes to favour the operators.

Archive of Model Portfolio Updates

July 2020

  • During the period (28 October 2019 to 30 June 2020), our portfolio lost about ~36% in value while Dow Jones Global Shipping Index (DJSGH) lost ~29%. The benchmark MSCI index slid about 1.3%, and shipping equities in this period were hit hard in 1H20 largely due to demand-side constraints. Meanwhile, key geopolitical risks continue, including the worsening ties between the US and China.

October 2019

  • During the period (13 March 2019 to 28 October 2019), our portfolio gained a substantial ~39% in value while Dow Jones Global Shipping Index (DJSGH) gained ~14%.
  • The benchmark MSCI index rose by a mere 5.5%. Shipping equities in the period have seen a rally in the last couple of months largely due to supply-side discipline.
  • Key geopolitical risks remain including, US-China trade negotiations, ‘no deal’ Brexit and US sanctions on Iran and Venezuela.

March 2019

  • During the period (4 October 2018 to 15 March 2019), our portfolio lost 12.2% in value and the Dow Jones Global Shipping Index (DJGSH) lost 14.7% in value.
  • Shipping equities have retracted sharply owing to the seasonal weakness in the bulk and container trades, and the persisting uncertainty in the macro business environment. As a result, the portfolio lagged behind the benchmark index MSCI, which declined 1.8% during the same period.
  • Weakness in stock performance also attributed to the sell-side pressure created during December 2018.
  • The portfolio modestly outperformed the sectoral benchmark the DJGSH by 2.6% during the period. On an annualised basis, the DMFR portfolio has returned 12.7% since its inception (February 2016) compared with 11.7% generated by the MSCI and -5.6% by the DJGSH.

October 2018

  • Our model portfolio is down 2.5% in the period starting 1 March 2018 to 4 October 2018, but continues to negotiate headwinds – as evident by the 6.3% outperformance against Bloomberg’s BI SHIP.
  • In this same period, however, the portfolio lagged behind the global benchmark – the MSCI World Index (up 1.2%) – as shipping stocks across the board, with the exception of the tanker sector, weakened. The allocation to stocks of large dry bulk carriers and tanker operators helped minimise losses.
  • We have modified our strategy to increase exposure to the tanker shipping sector to 47% from 11% earlier as we believe the tanker shipping market has bottomed out.
  • In terms of portfolio concentration, we have increased the number of stocks in our portfolio from 10 to 13 as we now include more stocks, especially in the tanker and LNG sectors.

March 2018

  • Our model portfolio gained 2.8% between November 2017 and February 2018, outperforming its sector-specific benchmark – Bloomberg’s BI SHIP (down 4.5%) – as a result of the rebound in the dry bulk and LPG shipping stocks. Meanwhile, the performance of the DMFR model portfolio lagged behind that of the global benchmark – the MSCI World Index (up 5.2%) – as we witnessed a disproportionate correction in global shipping stocks since the start of 2018. Our timely increase in allocation to gas shipping stocks benefited the portfolio as value-buying emerged, particularly in the LPG shipping space.
  • In November 2017, we increased our allocation of LPG shipping stocks from 7% to 16% on the back of improving demand-supply fundamentals.
  • The overall LPG vessel fleet is likely to expand 5% in 2018, compared with the average annual growth of 16% in the last two years. We had been confident on the coaster segment since the middle of last year, and our view is substantiated by the increased rates for smaller vessels. Download March 2018 Report

October 2017

  • Our model portfolio gained 11.1% between July and October 2017, outperforming its sector-specific benchmark – Bloomberg’s BI SHIP (up 5.2%), and also MSCI – the global benchmark index (up 6.8%).
  • This out-performance was a result of the continued recovery in the dry bulk and liner shipping sectors. We have maintained our exposure to liner stocks although we have reshuffled the allocation based on valuations.
  • Our increased allocation to gas shipping stocks benefited the portfolio as value-buying emerged, particularly in the LPG shipping space. Meanwhile, crude tanker operators continued to reel under pressure and the stocks under our coverage declined since our last update in July. Download October Report

June 2017

  • Our model portfolio gained 3.2% from March 2017 to June 2017, clearly outperforming its sector-specific benchmark, Bloomberg’s BI SHIP (down 2.5%), while being lower than MSCI, the global benchmark index (up 4.6%).
  • This outperformance was a result of our larger allocation to container shipping companies and port operators. However, at average P/B valuations of 2x for liner companies, most of the positive developments are in the price, and hence we believe it is time to book profit in names such as Maersk and OOIL, which have led the rally in the liner space.
  • We also trimmed our exposure to port operators in view of the surge in share prices especially ICTSI, which we downgraded to Neutral in May 2017.

February 2017

  • First year’s performance, Model Portfolio returns 38%. Download full report
  • In 2Q16, we made a tactical shift to increase allocation to the dry bulk sector as we upgraded it to Neutral, backing our conviction of the bottom in the dry bulk market. We downgraded the tanker segment considering its large orderbook, significant dividend cuts ahead and were also discouraged by stagnant asset prices despite healthy freight rates. Our conviction call for 2016, “Long dry bulk, short tankers” generated the highest alpha.
  • In 3Q16, our portfolio construct was geared for higher risk and we increased our allocation to the dry bulk sector to 42% as we expected the upward trend in stock prices to resume after a period of consolidation in 2Q16. The trade played out handsomely as our portfolio generated a return of 40% between October 2016 and February 2017.
  • Our portfolio defied a terrible year for the industry to produce a 38% return in our first year out. The model portfolio markedly outperformed the benchmark indices, BISHIPGP Index (Bloomberg Intelligence Marine Shipping Index, 14%) and MSCI World Index(19%) by a big margin.
  • For 2017, lowering allocation to dry bulk stocks; increasing weightage on container trade. We have reduced our allocation to the dry bulk segment to 31% from 42%. The value play is over in our view and we believe stocks could be at the risk of “too soon too fast” in the near term. Conversely, we believe that the worst is over for the container shipping and we see higher returns for the sector in 2017-18. We have increased the allocation to the sector from 8% to 27%. The port sector is another major constituent of our model portfolio for 2017 as world trade recovery gathers steam and earnings remain resilient for our portfolio constituents.
  • We are Neutral on gas shipping as we believe the stocks are trading in a fair territory, while we maintain our Unattractive stance on tankers.

October 2016

  • Our model portfolio outperformed key benchmark indices from June to October, although it is still down 6% from February 2016. The portfolio generated annualized returns of 15.7% during the four-month period starting from 16 June 2016.
  • We continue to stick to our thesis that dry bulk names will be the outperformers in 2017, and have added Star Bulk Carriers because of its high spot exposure and large Capesize fleet.
  • We have increased allocation to the Port sector as the global throughput growth is stabilising and hence earnings will remain resilient in our view; we have included China-COSCO Ports and ICTSI.

June 2016

  • We made a tactical shift to increase allocation to the Dry Bulk sector in June 2016 as we believed the bottom had been reached early in the year. Meanwhile, we downgraded the Tanker segment to Neutral on increasing vessel supply.
  • We reshuffled our portfolio to play the recovery in the Dry Bulk shipping sector albeit from a very low base, and believed that the beaten-down Dry Bulk names could provide superior risk-adjusted returns.

About our Model Portfolio

In 2016, Drewry Maritime Financial Research (DMFR) launched a model portfolio - selecting stocks within the global maritime space to ensure a balanced approach to managing risk in a low return environment.


Recommended stocks are hand-picked based on the fundamentals of each entity, coupled with near-term triggers. The objective of the model portfolio is to generate optimum returns in conjunction with moderate risk.
It is important to note that shipping is a high-beta sector; it is therefore not uncommon for shipping stocks to under-perform or out-perform the financial markets by a wide alpha.

 

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6

$6bn: The combined value of container shipping industry investments we have advised on since 2010.

20

$20bn: The value of financing projects we have provided commercial due diligence advice for in port M&A since 2010.

54

The number of countries in which our advisors have completed assignments since 2005.

400

Our advisors have been involved in over 400 port assignments over the past 10 years.
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