SonicShares™ Global Shipping ETF retains its Morningstar Medalist Rating of Bronze. Fees are a weakness here. The strategy's lofty fees are a high hurdle to clear, as it is priced within the second-costliest quintile among peers.  

 The strategy's effective investment philosophy supports an Above Average Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained a significant overweight position in liquidity exposure and quality exposure compared with category peers. High liquidity exposure is attributed to stocks with a high trading volume, lending managers more flexibility. And a high quality exposure is rooted in holding stocks that are consistently profitable, growing, and have solid balance sheets. The team managing this passive strategy earns a Below Average People Pillar rating. The strategy's parent organization still has a way to go to reach the industry standard, evidenced by a bench of portfolio managers with limited tenure and unattractive fees. As a result, the firm obtains a Below Average Parent Pillar rating.

Analyst Rating

Frontline

Scorpio Tankers

International Seaways

Matson

Star Bulk Carriers

DHT Holdings

Ship Finance

Dorian LPG

Teekay Tankers

Danaos

Morningstar's evaluation of this security's process aims to determine the likelihood that it will outperform its Morningstar Category index on a risk-adjusted basis over the long term. SonicShares Global Shipping ETF earns an Above Average Process Pillar rating. The main contributor to the rating is that this fund tracks an index. Historical data, like Morningstar's Active/Passive Barometer, finds that passively managed funds have generally outperformed their active counterparts, especially over longer time horizons. The firm's five-year retention rate of 100% also contributes to the process. Lastly, the process is limited by high costs across its parent firm's funds, whose fees rank in their category's highest-cost quintile on average. While this fund's costs are most relevant to investors, the pattern at the broader firm suggests it could do more to keep expenses low.

The investment strategy as stated in the fund's prospectus is:  The investment seeks to track the performance, before fees and expenses, of the Solactive Global Shipping Index.  The index is a rules-based index that seeks to provide exposure to a global portfolio of companies identified as being engaged in the water transportation industry. Under normal circumstances, at least 80% of the fund’s net assets, plus borrowings for investment purposes, will be invested in Global Shipping Companies. It also may invest in securities or other investments not included in the index, and but which the fund’s investment adviser believes will help it track the index. The fund is non-diversified. 

 The portfolio is overweight in energy by 25.4 percentage points in terms of assets compared with the category average, and its communication services allocation is similar to the category. The sectors with low exposure compared to category peers are industrials and technology, underweight the average by 18.6 and 3.2 percentage points of assets, respectively. The strategy owns 49 securities and its assets are more dispersed than peers in the category. In particular, 48.5% of the fund’s assets are concentrated in the top 10 fund holdings, as opposed to the typical peer's 69.8%. And finally, in terms of portfolio turnover, looking at year-over-year movements, 47% of the fund's holdings have turned over, whether through increasing, decreasing, or changing a position.

Above Average

Process

SonicShares’s team receives a Below Average People Pillar rating. The team is strengthened by the firm's five-year retention rate of 100%. However, the rating is weakened by the managers' failure to consistently outperform peers at the funds they run, as measured by their combined three-year manager excess returns. The number of months that the management team has been running this vehicle together also holds the rating back.

Below Average

People

With a two-year track record in the books, SonicShares has not been able to demonstrate that it has a unique value proposition over other asset managers. Consequently, it earns a Below Average Parent rating. SonicShares currently oversees one vehicle, with a total of $46.1 million under management and a bench of two portfolio managers. As a small group, this management team is quite accomplished with about 11 years of average total industry experience.  

 Lofty fees on open-end and exchange-traded funds at SonicShares detract from fund performance. Compared with its peers, the average expense ratio of the firm's fund lineup is in the second-costliest quintile.  

 To upgrade the firm's rating, SonicShares will be expected to build a consistent track record of positive investor experience.

Parent

Sonicshares Global Shipping ETF

BOAT is an indexed ETF that provides pure-play exposure to the global maritime shipping industry, which is considered the lifeline of the U.S. and global economies, as around 90% of the world’s trade is carried by sea.  BOAT tracks global shipping companies engaged in the maritime transportation of goods and raw materials, including consumer and industrial products, vehicles, dry bulk, crude oil and liquefied natural gas

BOAT tracks a modified market-cap-weighted index of globally-listed companies engaged in maritime shipping.

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J Mintzmyer discusses the shipping sector, disruptions in the Red Sea, and investment opportunities. Tankers and containerships are the most impacted sectors, with rates surging and potential for a multi-year supercycle.

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Recent weeks have seen a surge in security threats in the Red Sea, primarily due to attacks by Yemen-based Houthi militants. This has forced shipping companies to adjust their usual navigation routes, resulting in an unintended substantial rise in freight rates.

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Exchange-traded funds that track shipping stocks were surging on Friday after U.S.-led militaries launched airstrikes on Yemen's Houthi rebels in response to their attacks on Red Sea shipping, fueling market concerns about the Israel-Hamas war widening into a broader conflict in the Middle East that could prompt further spike in oil prices and in the cost of shipping.

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Red Sea serves as a critical transit route for oil. Consecutive Houthi attacks in this area for the past two months may boost these ETF areas.

Houthi Attacks in Red Sea to Boost These ETF Areas

Small caps are breaking out higher but most sectors are extended. A number of shipping stocks have been steadily building big bases, and a handful have already broken out higher from theirs. The market is heavily positioned for a 2024 recession, having already priced in 6 rate cuts by the Fed. This mitigates the downside risk in shipping stocks.

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Shipping and energy sectors are the biggest winners from the attack in Red Sea.

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We didn't expect a quiet year for trade and supply chains, but before it even started, the vital shipping sector has once again been pushed into the centre of geopolitical conflicts. Companies have started avoiding the Red Sea and this already leads to significant delays in supply chains and prices hikes on the spot market – and it could still get worse.

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Exchange-traded funds that track U.S. shipping stocks continued to surge on Tuesday after the world's major container shippers rerouted their tankers to avoid sailing through the Red Sea following attacks by Yemen's Iran-backed Houthi militants, as violence linked to the Israel-Hamas conflict prompted another spike in oil prices and in the cost of shipping.

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Despite headwinds, this shipping industry stands to benefit from favorable factors such as the reopening of the Chinese economy since early 2023 and an improvement in the demand for goods and commodities compared to the lows experienced during the pandemic.

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In recent years, market analysts have considerably widened the parameters they track to assess growth in countries, regions, and globally as far as container shipping goes. One often-overlooked indicator that we like is global freight rates and capacity availability.

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IHS Markit forecasts dry bulk rates to remain stable in the coming years with limited supply and stable growth in trade—more bullish in the near term and bearish for medium term. Dry bulk demand growth is expected to decrease to 0.2% in 2022 and settle at 1.7% in 2023, compared with 2.2% in 2021, while dry bulk fleet growth will slow to 2.8% in 2022, 2.2% in 2023, and 2.4% in 2024, compared with 3.4% in 2021.

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News for Sonicshares Global Shipping ETF ETF (BOAT)