Objective of the DMER model portfolio is to generate optimum returns in conjunction with moderate risk. It is important to note that shipping is a high-beta sector and tends to underperform/outperform the financial markets by a wide alpha on both sides.

The recent correction in share prices across shipping stocks, barring tanker operators, has transpired into attractive valuations. While investors are sceptical of catching falling knives, sitting on the cash means missing good bargains. Investors should adopt a diversified portfolio within the maritime space, to insulate from heightened uncertainty in the sector. We have followed top-down approach to build our model portfolio, while considering company-specific factors such as the balance sheet strength, financial performance and management profile for stock selection.

Rahul Kapoor, Director, Equity Research at Drewry opines at the launch of the portfolio, “Global trade is a key barometer for the health of the world economy and what better than to take exposure to this exciting sector when valuations are in your favour and at cyclically low point. Maritime stocks are paying the price of Chinese linkages and have been battered on slowdown in global trade and excess capacity. We expect the cycle to turn in coming quarters and the current valuations present good opportunities in our favoured sectors for medium to longer term investors”.

Investors should take higher exposure in the tanker segment, which will remain the prime beneficiary of low oil prices and high transported volumes. Next on our list of investible ideas is the Port sector and Container shipping/leasing companies, as we allocate 30% and 12% of available funds in these segments, so as to capitalise on a rebound in global trade. Gas shipping stocks, punished in the oil price conundrum, are worth having look given the compelling valuations. We remain underweight on Dry bulk sector as the asset prices are falling like ninepins and depressed freight rates continue remain a significant challenge to operating profitability.

Euronav is our largest position in the model portfolio underpinning our positive bias towards the Tanker market. From the port sector, DP World is our top pick, considering its diversified portfolio of port terminals. In addition to the Tanker and Port operators, we will also want to take a share in the gas shipping pie, with Golar LNG being the preferred pick as we believe the FLNG projects will disproportionately accelerate earnings and the current price offers a wide-moat opportunity at historically low valuations. We have also chosen companies such as Hapag Lloyd AG from the container shipping space in view of their relatively stable earnings profile and healthy balance sheets. Lastly, D/S Norden is our investible idea from the beaten-down dry bulk names and as it could generate significant alpha, assisted by a mild recovery from the abyss the market is in at the moment. We remain negative on Westports, Teekay LNG Partners, Hyundai Merchant Marine, Star Bulk Carriers and Golden Ocean.

The model portfolio reflects DMER’s preferred stocks at this point of time, and is subject to change depending on future developments in the shipping sector and respective companies.

To learn more about the construct of DMER’s Model Portfolio or to discuss an investment opportunity and our various service plans please write to us at equityresearch@drewry.co.uk.