A well-respected Norwegian shipping hedge fund reportedly lost 4.7% in July, putting it down 13.2% year to date — in what may be the best shipping equity market in 20 years. EuroDry Ltd. (EDRY) is up 185% year to date. How could it lose money? This fund believes some shipping segments are overvalued based on traditional factors and thus has short positions offsetting its longs. Call that style relative value. Looking back for at least 15 years, it was right — and it may be right again by tomorrow. But since the end of June, relative value hasn’t been working.
If you listen to investing podcasts as we do, you learn there is a group moving markets sitting above the managers: the allocators. What they obsess over is style. The quants trading factors think the same way. Growth versus momentum, AI exposure versus healthcare — pick a side, go long or short, perhaps hour by hour. Shipping investors should care. For the last two months, US-listed equities have moved as much on style as on anything happening to shipping fundamentals, and the style that has worked best is momentum.
Momentum investors buy high and sell higher. Cheap or expensive never enters into it. Their technical tools exist to exploit one thing: people are slow to price in good news. Currently they see nothing getting resolved: Hormuz, the Red Sea, the Black Sea, low water in the Panama Canal, and the Rhine. All of it could turntomorrow. Many shipping buy-side and sell-side analysts focus on the order book segment by segment, because it is knowable and may eventually enhance or collapse a cycle. Momentum investors don’t care. Our position is simple. We invest looking forward, not backward. We buy and hold, with tight stop-losses. We must see a fundamental change before we sell.
Like the song says, “It don’t mean a thing if it ain’t got that swing.”
