An exchange-traded fund that has returned more than 5,000% so far this year is drawing attention from investors. A 10 million won investment made at the start of the year would now be worth more than 500 million won. The fund is the Breakwave Tanker Shipping ETF (BWET), which invests in oil tanker freight rates.
BWET, managed by U.S. asset manager Amplify, has gained about 5,239% from the start of the year, making it the best-performing ETF listed in the U.S. market this year, according to the financial investment industry on the 12th. The share price, which stood at $18.73 in January, topped $1,000 on the New York market on the 8th of this month. Its gain over the past year reaches 6,988%.
BWET invests in oil tanker freight futures rather than in crude oil or shipping company shares. It holds 90% of its assets in freight futures (TD3C) for very large crude carriers, or VLCCs, that transport crude from the Middle East Gulf region to China, and the remaining 10% in Suezmax freight futures (TD20) covering routes from West Africa to Europe.
As a result, unlike conventional crude oil ETFs, it is directly affected by shipping costs rather than international oil prices. Freight rates rise when navigation risks increase on major routes, when shipping distances lengthen or when vessel supply tightens. The fund can generate returns even when international oil prices fall, as long as tanker freight rates climb.
BWET's recent explosive rally is tied to geopolitical tensions surrounding the Strait of Hormuz. As concerns over maritime shipping in the Middle East mounted, tanker freight rates surged, driving up the price of the ETF that tracks them.
Rico Luman, an economist at Dutch financial group ING, said in a report early this month that geopolitical turmoil in the Middle East has pushed up crude transport costs. Security risks have grown along major shipping lanes including the Strait of Hormuz, the Gulf of Aden and the Bab el-Mandeb Strait, and rising insurance premiums and various sanctions have combined to reduce the number of vessels actually able to operate, according to the report.
Ships choosing detour routes to avoid the risk of attack have lengthened transport distances and times. The expansion of the so-called shadow fleet that circumvents sanctions on Russian crude was also cited as a factor constraining the supply of sanctions-compliant vessels.
The increase in freight rates has been steep. According to ING, average daily earnings for crude carriers worldwide topped $500,000 (about 668 million won) in the first week of this month, 10 times last year's average.
Daily rates for VLCCs, which can carry 2 million barrels of crude, jumped from about $30,000 (about 40 million won) in January to $1.3 million (about 1.74 billion won) this month. That marks a more than 40-fold increase in little more than nine months.
Some caution, however, that investing on the basis of a short-term surge in returns is risky. Because BWET tracks freight futures prices, its price could plunge if maritime shipping conditions normalize. Experts say tanker freight rates could fall if vessel supply recovers or if navigation restrictions in the Strait of Hormuz are lifted.
John Murillo, chief commercial officer at financial services firm B2BROKER, said the conflict is unpredictable and could end at any time, adding that freight rates would fall when it does and the fund's price would follow.