Shipping fund targets booming dry freight sector

LONDON, June 6 (Reuters) A fund manager investing in the booming dry freight sector has so far chartered 12 panamax ships to ferry raw materials such as coal, iron ore, grains and fertilizer around the world.

Dry freight prices struck record highs in May because of robust global economic growth and surging demand for raw materials from China and India.

Steve Rodley, director at London- and Athens-based M2M Management, said the profit opportunity arises because of differences between the way the traditional shipping industry and commodity firms work.

''The key aim for the shipowners is an asset play, to pick the right time to buy and sell ships and in between they want to receive an income in dollars per day to pay the banks who have lent them the money,'' Rodley told Reuters on Wednesday.

''Commodity firms want to pay someone to move their commodities around, for example from Brazil to Europe. They pay in dollars a tonne.'' M2M's fund, Global Maritime Investments has hired the vessels on long-term charter and have a capacity of around 72,000 tonnes.

Eleven have been leased for between six and 12 months.

Global Maritime, probably the only one involved in physical shipping of commodities, has one further panamax until October 2008. Panamax ships, up to 80,000 tonnes, are named for being the biggest ships that can squeeze through the Panama Canal in Latin America.

USED LIKE TAXIS The strategy works because commodity firms do not want to be involved in the shipping market as owners and operators.

''They have other risks to manage. If you are an iron ore producer in Brazil, first you have to get it out of the ground, then you've got to get it to the port and then you need cranes and other infrastructure to load the material,'','' Rodley said.

''There are risks associated with loading, trucking and railing .... They want to keep the freight side simple. They use us like taxis.'' Rodley thinks there are only five funds worthy of note in the shipping market. Two trade the stocks of shipping and related companies, one trades equities and freight futures on the Baltic Exchange and one trades only freight futures.

''We're the only fund in the world that hires ships and moves cargo around,'' he said, adding that around 46 percent of the fund's total assets -- about million -- was in freight futures and over-the-counter freight swaps.

''Swaps are primarily used to hedge the physical exposures and are based on the the Baltic Exchange indices for the Panamax routes for forward months.'' Rodley said the information gained from being in both the physical and futures market was critical.

Global Maritime has between launch on October 5, 2006 and the end of May returned nearly 20 percent.

One of the advantages for investors looking for diversification is that the fund's returns have little or no correlation -- a statistical term used to measure the extent to which two variables move in the same direction -- with equities.

''The interesting thing is we are not closely related with the shipping market either because we are not a directional fund, we are not punting the market,'' Rodley said.

REUTERS SRS GC1953