UK shipowner Tufton Oceanic Assets is shifting cash away from container ships as it predicts strong earnings from tankers in the medium term.
The London-listed fund has sold four boxships in record markets since last June, while adding seven bulkers and three tankers in 2021.
"Tufton believes the shipping market is in a multi-year up-cycle and offers investors inflation protection," the company said.
With the Clarksons newbuilding price index rising 22% last year, Tufton believes the lack of bulker and tanker orders is being driven by uncertainty over environmental regulations, as well as a lack of access to capital from traditional sources.
"This has contributed to an ongoing supply side adjustment which could result in structurally higher profitability for the industry versus history," the shipowner said.
Managers see the tanker sector as having strong support from supply-side fundamentals, with the orderbook ending the year at only about 7% of existing fleet, the lowest in more than two decades.
Big drop in deliveries
With the majority of these new vessels scheduled for delivery in 2022, fleet growth is expected to slow "dramatically" in the medium term, Tufton added.
An increase in scrapping seen over 2021 could continue and help accelerate an adjustment in vessel supply, the fund argued.
"The combination of supportive supply-side fundamentals and improving global oil demand results in the potential for strong capital appreciation over the medium term," Tufton said.
Bulkers continue to offer strong yields, the company said in its fourth quarter update.
And the container ship market ended the year with time charter rates and asset values close to record highs.
But Tufton said: "The increase in new orders over the past 18 months supports the company's re-allocation of capital away from the segment into tankers and bulkers."
Net asset value continues to rise
Containerships now make up 19% of Tufton's net asset value (NAV), which hit $424.67m on 31 December, up from $371.1m on 31 August last year.
The NAV total return for the quarter was 2.1%, and 49.1% for 2021 as a whole.
Tufton is paying a dividend of $0.02 per share for the last three months.
The fleet will stand at 23 ships with charter cover of nearly two years when its latest acquisitions are delivered.
The addition of two bulkers and a tanker in recent weeks has cut the ratio of the portfolio price to the depreciated replacement cost from 125% to 105%, signalling a lower risk and higher upside potential.
This ratio is planned to be reduced further with additional capital re-allocation, the company said.
Operating profit was $0.034 per share in the fourth quarter, or $10.5m based on 308.63m shares outstanding.
