Conflict in Ukraine has caused shipping hedge fund Cleaves Asset Management to add shares in tanker companies and gas carriers to its investment portfolio. But Joakim Hannisdahl, the fund’s founder, and CEO, said the fund has mixed feelings about making this pivot. “The Russian invasion of Ukraine has created a lot of opportunity in shipping which we have successfully seized, but our overarching sentiment is with the people of Ukraine,” he said in the firm’s monthly report for February. “When the invasion started, we swiftly executed our action plan: Investing heavily in oil tankers with some allocation towards gas carriers.” Hannisdahl placed 38% of the fund’s capital in oil tankers and 8% in LNG carriers after the news broker. Another 4% was placed in VLGCs. Most of these positions have since been closed out, Hannisdahl said in an update on Twitter on Wednesday.

Before making the new investments, just over half of the fund’s exposure consisted of investments in dry-bulk stocks plus a cash position in Norwegian krone. Both have been adjusted. CAM had previously taken a bullish stance on dry bulk stocks and built a significant dry bulk position during January. Its cash position was drawn down to zero within the space of just two trading days following the invasion, the firm said. CAM does not disclose the size of its assets under management (AUM) publicly but said its index-based unaudited net asset value stood at 114 points at the end of February. This is up by 16% from January and by 18% this year to date. Hannisdahl told TradeWinds in February that the fund expects to increase its AUM “manifold” once it merges its temporary Norwegian business structure into an Irish collective asset-management vehicle in April.

The hedge fund had no intention of buying into tanker stocks prior to the military action in Ukraine, Hannisdahl said. Earnings were at all-time lows and tanker companies are unveiling their fourth-quarter results in “one of the worst reporting seasons on record”, he noted. “However, as seen so many times before in shipping: When a black-swan event occurs, you need to be pragmatic as an investor.” For Cleaves, this meant packing the fund’s portfolio with a basket of oil tanker shares, with some suezmax, aframax and product tanker exposure — ready for a predicted rise in freight rates. And what a rise it was. Average suezmax spot rates had been negative prior to the invasion, but surged to over $90,000 per day over the course of three trading days. Aframax rates increased tenfold. This had had a knock-on effect on stocks. Nordic American Tankers, which is part of Cleaves’ portfolio, has seen its share price rocket by just under 50%.

CAM also loaded up on LNG stocks, in anticipation of disruption to seaborne natural gas trade that could be positive for LNG carriers. “The picture is however ambiguous with Russian gas pipe exports to Europe being more or less landlocked, while liquefaction terminals are already running at close to full capacity worldwide,” Hannisdahl said. “Thus, we could see a situation where European demand displaces more tonne-mile-heavy Asian imports from the US.” LNG diverted from the Middle East to Europe could have a slightly negative impact on tonne-miles, but this could be offset by longer trips from Australia. Russian gas is not currently subject to trade sanctions and trips to Europe from the huge Yamal LNG project in Russia’s Far East will add to tonne-miles too.

CAM also anticipates “improving economics of moving LPG from the US to the Far East” and has bought shares in owners of VLGCs accordingly. Hannisdahl said the fund expects spot rates and equities to rise going forward. Already, he said, the LNG price differential between the US and the Far East has risen rapidly. The fund is still highly optimistic about the outlook for bulk carriers, but Hannisdahl said the Ukraine conflict has created uncertainties in the near term. Disruptions to Russian coal volumes, which are now subject to trade sanctions, could add to tonne-mile demand for bulkers as European’s source coal from further afield and Russian coal finds its way to alternative destinations, he said.