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  • Writer's pictureRyan Lynch

Inter-Asset Opportunity Ranking - "The Best of the Best"

The newest article by Maritime Opportunity Investment Corporation investigates the relationship between market risk, underwriting risk and increasingly important today - cost inflation risk.

We look to "rank" - in descending order- the different asset classes on their investment sustainability relative to other segments.

Market risk is based on our assessment of current lease rates versus a historical distribution, market expectation and where applicable- derivative market information, all assessed relative to daily operating costs.

We then control for underwriting risk on second hand assets, where we principally seek to capture the appreciation in second hand prices driven by a more firm "spot" rates market. When this occurs, there is demand for prompt deliveries of new acquisitions (rather than waiting for newbuilding in 2-4y), which may be causal to performance risk on loan servicing. As we know loan to value rates are adversely impacted by downside shocks to prices.

Finally, we control for cost-inflationary risk which is increasingly prevalent in the current macro environment. While potentially mitigated by prudential operator management, there is a pro-cyclical effect with capex budgets. With any USD denominated debt the elasticity effect of an easy policy stance by the Fed is material (especially given the service ratios). This easy policy does appears to be coming to and end as many purists agree.

We again note, this is an exercise in relative value, we make no explicit or implicit investment recommendations, and we encourage anyone to reach out to MOIC.

MOIC 06 Dec
Download PDF • 127KB

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