This little-known ETF rose more than 600% during the US-Iran war

As tensions rise in global energy markets and a deal to end the US-Iran conflict remains elusive, oil prices has increased, but there is an even better trade-off in terms of volatility that investors have flocked to: the cost of going green.

Rating of the company Breakwave Tanker Shipping ETFBET), a little-known exchange-traded fund tied to crude oil tanker load ratings, has surged more than 600% year to date as war and disruptions in key sea lanes push freight rates to record highs.

“I started getting a lot of questions about this ETF, like, what’s associated with it? What kind of performance is this?” Cinthia Murphy, director of research for VettaFi, said this week on CNBC “ETF Edge.”

BWET is a $30 million portfolio launched in May 2023, in an ETF market with over $13 trillion in assets.

Murphy explained the level of movement has forced the market to rethink where the real power resides. Rather than focusing solely on oil prices, which have been extremely volatile this year, investors may also look to the infrastructure the world relies on to transport energy supplies.

“It’s really a matter of transportation costs,” Murphy said. “Anytime you have a big disruption in shipping … commodity futures go up and there’s one ETF that captures that performance better than anyone else.”

Murphy said ongoing tensions in the Strait of Hormuz have proven to have the potential to send commodity futures higher quickly as markets retrace the risk of transporting goods in the region, not just oil. For example, the Baltic Exchange Dry Index rose more than 6% last week and 41% since the beginning of the year.

But, “it’s really moving that oil into a bigger story,” said Paul Baiocchi, head of portfolio sales and strategy at SS&C Technologies.

Oil prices have risen sharply this year, with the US Oil Fund (THE FACE) up to 90% as of Friday, and the SPDR State Street Energy Select Sector SPDR ETF (XLE) more than 23% as energy stocks posted strong gains. But those moves seem modest compared to the rise in commodity futures, and the rise in BWET began before the outbreak of war in the Middle East, with BWET rising more than 1,000% in the past year.

“Yes, oil prices are very high and the energy sector in general, the energy balance, every part of the energy story this year has been a big blockbuster year,” Murphy said. But he added, “BWET is really stagnant [out].”

Equity research groups on Wall Street are also closely watching the rise in the tank’s shares.

At the same time, Baiocchi said the rally is linked to a broader theme playing out across global markets: underinvestment in energy infrastructure and the growing need to secure strong supply chains.

“[We talked] with this view that even before the Iran conflict, many of these global commodity markets were saturated, and if nothing else, this conflict has increased many challenges,” said Baiocchi.

That includes not only the transportation of oil, but also the extensive construction of energy systems. “Countries and companies around the world will be busy looking for stable sources of energy,” he said.

Even though BWET is attracting a lot of attention, ETF experts caution that asset prices are volatile in nature and driven by short-term shocks. But as geopolitical tensions continue to reshape international trade, many investors are looking beyond commodity prices and the system that determines how goods move to market to invest.

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