A Norwegian equity fund manager sees shipping stocks gaining popularity in the coming years.
Martin Molsaeter, portfolio manager and partner at First Fondene in Oslo, thinks many funds will invest more in shipping companies as the current upturn will last longer than earlier ones.
Historically, shipping stocks have been very volatile with high ups and downs.
“Now it is very good profitability but tanker and bulker companies don’t invest much. That is unique,” Molsaeter said in an interview at his office near Aker Brygge.
Molsaeter manages close to NOK 2bn ($180m) in two funds, one Norwegian called First Generator and one global one, First Global Focus.
“Every time they have made a lot of money they have ordered too many ships and increased debt too much. Especially within dry bulk and VLCCs, it would have historically led to a big wave of newbuilding activity. But now they haven’t done it,” he said.
Going forward, shipping stocks will swing less because companies have not booked too many newbuildings and increased debt, according to Molsaeter.
Lower leverage means lower volatility for investors.
“Therefore, we see that many funds are underinvested in shipping — because they think it will swing as before. But it will not be as volatile as in the past,” he said.
In both funds, which only hold 16 to 20 stocks, shipping stocks are among the biggest holdings.
“I see that many funds will increase the weight in shipping stocks in the coming years when they realise that they do not swing as much as before,” he added.
In the Norwegian fund, he holds Frontline and Golden Ocean as big companies and liquid stocks.
Recently, he sold off 2020 Bulkers after it had “risen too much”.
In the global fund, Molsaeter has invested in DHT Holdings, Genco Shipping & Trading and Star Bulk Carriers.
“DHT Holdings is good at buying and selling vessels and pays stable dividends,” Molsaeter said.
He thinks the investor community will start seeing it as a dividend case and then the stock will be repriced.
In Genco, he sees potential for increased value in the company’s older vessels as secondhand prices have not increased that much.
Molsaeter hopes there will be an increase in orders as it pushes up newbuilding prices and will also support the value of current fleets.
“It is good when they start to order new ships but not too much. There can be many newbuildings before it affects the stocks negatively. It will be positive because it will push up secondhand prices,” he said.
Within dry bulk, he thinks the supply is more important than the demand.
“If the supply growth is low you should buy dry bulk stocks. The demand is always uncertain,” he said.
Molsaeter has been an asset manager at First Fondene since 2010. Earlier, he ran a hedge fund for Oystein Stray Spetalen’s Ferncliff TIH AS.
He has also worked as an equity research analyst at First Securities, DNB Markets, ABG Sundal & Collier, Morgan Stanley and SEB.
Some bulker companies have a big discount to net asset value, according to Molsaeter.
He sees secondhand prices rising and that the discount could narrow a lot.
First Generator was up 4.4% through March, while First Global Focus had increased 10%.
According to Molsaeter, this upturn is different, with fewer newbuildings, busy shipyards and an ageing fleet, especially within tankers.
“People look at history, so it will take some years before the change of the perception of shipping stocks will be reflected in the market. Funds will have more shipping in their portfolios in a few years,” he concluded.
