SEA: Sea, Air And Land Shipping All In One ETF

The US Global Sea to Sky Cargo ETF (SEA) has selected 29 companies from around the world that are key players in the global supply chain. The advisor to the fund has elected to initially place 30% of its portfolio with companies in the air freight business like FedEx (FDX) and United Parcel Service (UPS).

The other 70% is in the global shipping-by-sea business. Depending upon whether we consult the UN statistics or various national numbers or query industry leaders, some 80%-90% of all international movement of goods goes by sea and the companies in the SEA portfolio are among the biggest and best-known players. The largest of these holdings is ZIM Integrated Shipping Services Ltd. (ZIM). I wrote a “Strong Buy” article defining the benefits of owning ZIM on Nov. 17. You can read it here. Since that time, the stock is up 28%, the S&P is down 3%.

Rather than discuss each of the rest individually, here's the entire portfolio. You are welcome to continue your own research or query me to see if I have further information on some of these…

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SEA

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SEA

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SEA

(Source: U.S. Global Sea to Sky Cargo ETF)

SEA has just under $6 million in net assets. The ETF trades on the New York Stock Exchange.

The stated expense ratio is preposterous. But read on. Listed at 3.03%, the “real” expense ratio today is just 0.6%. That is because there's a contractual expense limitation between U.S. Global Investors, Inc., the fund’s investment adviser, and the fund. The adviser has agreed to waive its management fees and/or reimburse fund expenses to ensure that annual operating expenses do not exceed 0.6% for the first $100 million of the Fund’s average daily net assets and 0.70% for net assets greater than $100 million. This agreement is guaranteed at least through October 27, 2022, unless terminated sooner by, or with the consent of, the Trust’s Board of Trustees.

There are just 275,000 shares currently outstanding.

All portfolio holdings must have a minimum market cap of $100 million and must also have an average three-month dollar traded value of at least $5 million.

Why this fund? Why now?

Trade among nations has been increasing for many decades. One of the primary drivers of this increase has simply been that many more people worldwide have been able to move up, sometimes from rank poverty to a more middle-class lifestyle. This means that there are simply more consumers looking for more goods then any one nation is likely to produce by itself. This trend has accelerated in recent years.

In addition, because of the COVID pandemic these consumers' ability to consume has been drastically reduced. For that reason, companies that are able to ship goods as we reopen from the worst of the COVID nightmare are in the catbird seat. The kinds of companies owned by SEA have the ability to transport goods from various manufacturers who are willing to pay the best prices to have their goods arrive before their competition’s products do.

While we may need more ships, ports, longshoremen, truckers, and others essential to getting goods from one side of the globe to the other, we cannot simply produce them out of thin air. It takes a long time to build a seaworthy vessel capable of carrying the various goods and products across the seas.

Nor is it particularly easy to simply expand a current port or, for that matter to hire more longshoremen and truckers. Even then if we could do all that where do we put this stuff? There are distributors along the way, and of course the endpoint where the retailers actually get to deliver product to the consumers.

I believe SEA is the right fund at the right time to benefit investors who see the logic of investing in the companies that not only bring us the products we want but do so in an especially profitable manner.

Here's how SEA encapsulates at a single glance how the index they have established to follow is delineated in terms of company size:

SEA market capitalization breakdown

SEA

Finally, here's an “in a nutshell” look at the dynamics of the portfolio. Please note that, while their minimums are $100 million for any one company, only one holding has a market cap below $1 billion and the average weighted market cap is $25.8 billion!

SEA breakdown

(Source: here)

These are well-established companies currently racing to keep up with demand. The demand is there in spades. These are the kinds of firms that will ensure the supply is there. I am buying SEA.

Disclosure: I/we have a beneficial long position in the shares of SEA either through stock ownership, options, or other derivatives.

Disclaimer: I do not know your personal financial ...

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Harry Goldstein 6 months ago Member's comment

Excellent read, thanks.