US institutional investor Fidelity’s purchase of a 12% stake in New York-listed Genco Shipping & Trading is part of a wider build-up in dry bulk by the mammoth firm over the past six months, according to finance sources and available data. Fidelity’s accumulation of a $90m position in Genco stands beside a holding of at least $64m in dry-trade peer Star Bulk Carriers of Greece, along with smaller holdings in the Golden Ocean Group, Safe Bulkers, Eagle Bulk Shipping, Pangaea Logistics and Diana Shipping, records show.

The broader holdings appear to suggest Fidelity — a classic buy-and-hold or “long only” investor — has bought into the notion that dry bulk’s current bull run has some longevity. However, it is also worth noting that Fidelity’s largest holding comes in three owners who pay shareholder dividends — and in the case of Star Bulk and Genco, they are payments that could become robust over the next quarters if the rally endures.

“We have seen a good amount of interest from long-only funds over the past few months,” veteran Clarksons Platou Securities analyst Omar Nokta told TradeWinds. “Higher earnings and free cash flow generation are driving the interest, with a backdrop of strong demand and supply dynamics. In Genco’s case, it seems to be the potential of significant dividends going forward but the main factor in our view is simply the flexibility the company has with its strong balance sheet and free cash flow.”

Fidelity’s filing indicates the Boston-based company has accumulated nearly 5m shares, or an 11.9% stake in Genco. It began building the stake in the first quarter, when it held 3.7m shares or 8.8%. Fidelity has not updated its holdings of Genco’s dry-trade peers since the end of the first quarter. But at that time, it held about 3.5m shares of Star Bulk. While that is only 3.4% of the company, it was worth about $64m based on the current share price.

Genco announced a shift towards a low-debt, high-dividend model at the end of the first quarter. The policy is to take effect in the fourth quarter with payments in the first quarter of 2022. Star Bulk instituted a high-payout dividend model in 2019 that fell into hibernation during the lean times of Covid-19 in 2020 but was revived in May amid a strong market. Investment bank Jefferies expects Star Bulk to pay out $1.27 per share in the third quarter, $1.97 in the fourth and $4.30 for all of 2022.

So, is it the long-term rates outlook or the dividend play that attracts a Fidelity? In the end, they are joined at the hip. While Genco said it is structuring its balance sheet to pay a dividend in any rates environment, the payments will certainly be more robust when hire rates cooperate. “Taking 12% of any company takes courage,” one shipowning executive said. “It is not something that Fidelity or any other mutual fund investor would usually do. They must like the prospects for the industry and, specifically, the prospects of the company a lot.” A second company executive said he believes the size of Fidelity’s position was influenced by the exit of Genco’s top three private-equity holders — making large blocks of shares freely available — and the ability to buy below the owner’s net asset value. “I think Fidelity’s outsized position was a bit opportunistic because there were some big sellers in the first quarter, and at a discount,” he said. “Genco was for sale because those guys were looking to get out. If an investor is bullish on the sector and thinks we’re in a prolonged cycle, it means all these companies will generate cash and will have to do something with the cash, whether that’s pay it out or reinvest it. If you reinvest, you create value as well. So, I think the interest is more that Fidelity is overall bullish on the sector.” Fidelity’s third-largest reported position in a dry owner is a stake of just over $28m, or 1.3%, in John Fredriksen-backed Golden Ocean. The owner is paying a quarterly dividend of $0.25 per share.