Key insights
- The article discusses the Breakwave Tanker Shipping ETF (BWET) and its recent outperformance due to geopolitical tensions in the Strait of Hormuz. The author argues against investing in BWET due to its high sensitivity to world events and the need for constant monitoring. The ETF's value is tied to tanker shipping rates, making it a speculative investment rather than a long-term holding. The author prefers investing in broad market ETFs like VOO.
Like a shy 13-year-old standing awkwardly to the side at a middle school dance, the Breakwave Tanker Shipping ETF (BWET +17.83%) doesn't always garner much attention. But still, it's crushing the market, surging a remarkable 243% year-to-date. Despite its performance this year, I have no interest in investing in this ETF.
The entire purpose of investing is to prepare for the future. While I have a brokerage account dedicated to shorter-term goals, my primary account is intended solely to fund retirement. However, investing in BWET is nothing like investing in the Vanguard S&P 500 ETF (VOO 1.47%).
VOO tracks the S&P 500 (^GSPC 1.51%), which allows me to invest in companies I know and use, like Apple, Microsoft, Amazon, and Alphabet. Just as importantly, it allows me to invest in many companies, reducing the risk to my portfolio when one or more falter for a time. With BWET, I'd be investing primarily in tanker shipping rates, which are highly sensitive to world events. When those prices drop, so does my ETF's value.
Unlike ETFs that track a broad stock market index -- such as the S&P 500, Nasdaq-100, or Dow Jones Industrial Average -- BWET tracks rising freight rates. About 90% of its portfolio consists of TD3C futures, which track the cost of transporting crude on large carriers from the Middle East to China.
There's a clear reason why BWET's value has surged: The current danger of getting through the Strait of Hormuz. Carriers are either refusing to take the risk or charging much higher prices to transport crude, which is exactly what BWET tracks, and precisely why I'm not interested.
It's likely that at some point, the Strait of Hormuz will open again for business as usual. At that point, am I supposed to sell off BWET immediately, wait a few hours, or call my broker for advice? I don't want to babysit my investments. I want to research specific industries and buy stock in the most dependable players.
Years ago, I read a quote from Warren Buffett saying that we should only buy something we'd be perfectly happy to hold if the market were shut down for 10 years. In my mind, Buffett was saying we should get to know the businesses we're investing in well enough to stick with them for the long term. And that's what I do.
I understand why BWET has moved from awkward middle schooler to the most popular kid at the dance, but that doesn't mean I want to join them on the dance floor. Freight rates can change on a dime, sure to swing dramatically during geopolitical disruptions and fall just as rapidly once conditions normalize.
Instead, I'm all about investing in long-term ETFs that I plan to hold for years.