The Breakwave Tanker Shipping ETF (BWET) has surged more than 600% since the beginning of the year, vastly outperforming fundamental energy trades like crude oil, which is up around 60% in the same period.

Rising tensions in the Strait of Hormuz caused by the U.S.-Iran war and disruptions to key maritime corridors have caused freight futures to skyrocket.

ETF experts says it’s a sign investors are pivoting towards energy infrastructure and ways to revenue from higher shipping costs as plays on geopolitical volatility rather than betting on oil prices.

As geopolitical tensions ripple through global energy markets and a deal to end the U.S.-Iran war remains elusive, oil prices have soared, but there’s an even better trade on energy volatility that investors have flocked to: the cost of moving crude.

The Breakwave Tanker Shipping ETF (BWET), a little-known exchange-traded fund tied to crude oil tanker freight rates, has surged more than 600% year-to-date as war and disruption in key maritime corridors drive shipping rates sharply higher.

“I started getting a lot of questions about this ETF, like, what is up with it? What kind of performance is this?” Cinthia Murphy, VettaFi director of research, remarked on this week’s CNBC’s “ETF Edge.”

BWET is a $30 million portfolio that launched in May 2023, in an ETF economy that has over $13 trillion in assets.

Murphy explained the scale of the move has forced the industry to rethink where the real leverage in energy resides. Rather than focusing only on oil prices, which have been extremely volatile this year, investors may be looking toward infrastructure that the planet relies on to move energy commodities.

“It really is a story about shipping costs,” Murphy stated. “Anytime you have some massive disruption to shipping … freight futures skyrocket and there’s one ETF that captures pretty much that performance better than anybody else.”

Murphy remarked the ongoing tensions in the Strait of Hormuz have proven to hold the ability to send freight futures higher quickly while markets reprice the risk of moving commodities through the region, and not only oil. For example, the Baltic Exchange Dry Index is up over 6% for the past week and 41% since the beginning of the year.

But, “it’s really moving that oil around that has been a large story,” remarked Paul Baiocchi, head of fund sales & strategy at SS&C Technologies.

Oil prices have risen sharply this year, with the U.S. Oil Fund (USO) up close to 90% as of Friday, and the SPDR State Street Energy Select Sector SPDR ETF (XLE) up over 23% as energy stocks have posted strong gains. But those moves seem modest compared with the spike in freight futures, and the surge in BWET began even before the outbreak of war in the Middle East, with BWET up over 1,000% in the past year.

“Of course, oil prices have been dramatically higher and the energy sector in general, energy equities, every part of the energy story this year has been a massive blockbuster year,” Murphy remarked. But she added, “BWET is really standing [out].”

Wall Street equity research teams are also placing more attention on surging tanker stocks.

At the same time, Baiocchi mentioned the rally ties into a broader theme that is being played out throughout global markets: underinvestment in energy infrastructure and the growing need to secure more resilient supply chains.

“[We talked] about this idea that even before the Iran conflict, a lot of these global commodities markets were fraught, and if nothing else, this conflict has exacerbated a lot of the challenges,” Baiocchi commented. This also touches on aspects of bear market.

That includes not just oil transport, but the broader buildout of energy systems. “Countries and companies around the globe will be scrambling to find more stable sources of energy,” he stated.

Even as BWET draws outsized attention, ETF experts caution that freight rates are inherently volatile and driven by short-term shocks. But as geopolitical conflict continues to reshape global trade, more investors are looking beyond commodity prices and to the system that determines how commodities move to industry for investing profits.

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