On the way back to Dallas after attending Marine Money, I had time to read two interesting papers. One was “The Less-Efficient-Market Hypothesis” by Clifford Asness that appeared in the November 2024 issue of The Journal of Portfolio Management. The other was “Assessing the Impact of Passive Investing over Time: Higher Volatility, Reduced Liquidity, and Increased Concentration” by Felix von Moltke and Torsen Slok of Apollo, published in November 2024. Both have implications for shipping equities.
Asness posits that investors have instantaneous access to data, with trading costs lower than any point in the last 34 years. It allows them to shoot first and ask questions later. Slok and von Moltke write that passive indices magnify the demand for large and mega-cap stocks while decreasing the appetite for small-cap equities. Since the majority of shipping equities are small cap stocks, fewer investors follow the segment. It is important to see the perils and opportunities created by this situation. It is possible to invest successfully, but a lot of it depends on an investor’s time horizon.
At Marine Money in New York, we saw many reasons for optimism in contrast to the meh sentiment of many shipping executives. These differences may be due to current conditions versus future opportunities. Many investors sell dry bulk when they are worried about the Chinese economy and buy it when they are optimistic. Rates are weak today, but they say little about the future. Depending on geopolitical outcomes, we see significant potential for increased steel demand. In any event, despite economic weakness, the Chinese have substituted Brazilian Iron Ore for low FE Chinese sourced products. We also have the new bauxite trade. These factors are likely too subtle for your average investor on his or her iPhone but should contribute to a future rebound. Swimming swim against the tide is difficult, but it can create upside for the patient investor in the long run.
