BDRY: A Valuation Unicorn Among Public Dry Bulk Shipping Stocks
Unlike most publicly-listed dry bulk shipping companies, the Breakwave Advisors Dry Bulk Shipping (BDRY) exchange traded fund is valued at a slight premium to its net asset value.
Public dry bulk shipping companies on average trade at a 25% discount to their net asset value (NAV), yet BDRY stays close to its NAV. How can this be?
Two key factors differentiate BDRY:
Setup | BDRY is an exchange traded fund (ETF), holding forward freight agreements (FFAs) linked to benchmark dry bulk shipping rates.
Arbitrage Mechanism | Sophisticated quantitative firms, like Jane Street, Susquehanna, and Citadel, use ETF creation/redemption rights to profit from small price gaps.
When BDRY trades above its NAV, these firms create new shares with cheaper FFAs, and then sell the shares at the higher market price.
If BDRY trades below its NAV, they buy ETF shares and redeem them for FFAs, which can be sold at a premium.
This arbitrage mechanism keeps BDRY’s share price tightly aligned with its underlying NAV.
In theory, public shipping companies could adopt a similar tactic—issuing shares when they trade at a premium to buy more ships, and selling ships to buy back shares when they trade at a discount.
However, this tactic would take far longer and would be far more complex when applied to fleets rather than trading FFAs. Plus, management teams may be hesitant to risk eliminating their own roles when downsizing fleets.
