The Super El Niño Trade: Two Potential ETF Winners and Losers

Potential Loser: Brookmont Catastrophic Bond ETF

ILS

One of the most direct ETF casualties from a Super El Niño scenario could be the Brookmont Catastrophic Bond ETF

. To understand why, you need to understand what catastrophe bonds are.

Catastrophe bonds are fixed income instruments that allow insurance companies and reinsurers to transfer natural disaster risk to capital markets. In exchange for taking on that risk, investors receive attractive floating-rate coupons that often compete with high-yield corporate bonds while maintaining relatively low correlations with traditional stocks and bonds.

One of the selling points frequently highlighted by catastrophe bond advocates is that natural disasters generally have little relationship to recessions or stock market crashes. Brookmont itself points to the positive performance of catastrophe bond benchmarks during the 2008 financial crisis.

The tradeoff, of course, is that investors are effectively selling insurance against tail-risk events. Those risks include hurricanes, typhoons, earthquakes, floods, and wildfires. Importantly, several of these are precisely the types of events that can become more frequent or severe during a powerful El Niño cycle.

To be fair, ILS does diversify its exposure across numerous catastrophe types and geographic regions. Investors are not making a single concentrated bet on one hurricane season or one wildfire region. But there is still a degree of weather sensitivity embedded in the strategy.

This is one of those situations where the fund's current 8.1% annualized yield may ultimately prove to be compensation for risks that remain largely invisible until they materialize.

There are also a few things about the ETF itself that I find less than ideal. First, the expense ratio is steep at 1.58%. Second, liquidity is mediocre, with a 30-day median bid-ask spread of roughly 0.15%. If you're attempting to trade around a short-term weather thesis, that spread becomes a source of drag.

Another thing that did catch my eye was the discrepancy between the ETF's market return and net asset value return. As of May 31, over the trailing one-year period, the gap shows a 5.58% market return versus a 7.53% NAV return. In 2025, ILS spent the overwhelming majority of trading days at a premium to NAV, with only a small number of days trading at a discount.

That is a surprisingly large discount relative to NAV for an ETF and is something I would more commonly associate with closed-end funds. It serves as a reminder that even the ETF creation and redemption mechanism is not perfect when dealing with niche and relatively illiquid underlying assets.

Potential Winner: Breakwave Dry Bulk Shipping ETF

BDRY

+1.25%

One of the lesser-known consequences of a major El Niño event is its impact on rainfall patterns across Central America. Extended drought conditions can lower water levels in critical transportation bottlenecks, most notably the Panama Canal.

When water levels fall, canal authorities may be forced to limit the number of daily vessel transits or impose draft restrictions on ships passing through the system. The result is effectively a reduction in available shipping capacity.

For investors looking to express that thesis, one ETF worth watching is the Breakwave Dry Bulk Shipping ETF

. BDRY gains exposure through freight futures contracts tied to global dry bulk shipping routes. One notable detail is that approximately 40% of the portfolio consists of Panamax 4TC contracts, which track the largest class of dry bulk vessels capable of transiting the Panama Canal.

The ETF has already benefited from broader disruptions to global shipping markets this year, although not nearly to the same extent as tanker-focused freight strategies tied to oil transportation. That's because dry bulk cargoes such as iron ore, coal, grain, and fertilizers generally have more routing flexibility than energy exports moving through geopolitical hotspots.

A severe El Niño could create a separate catalyst altogether. If Panama Canal throughput becomes constrained, voyage times could increase, shipping capacity could tighten, and freight rates could move higher. Those dynamics would likely be supportive of the freight futures contracts that BDRY holds.

This isn't a direct weather trade, but it is one of the cleaner second-order effects I can think of. If a Super El Niño creates meaningful disruptions to one of the world's most important maritime chokepoints, BDRY is one ETF I'd have on my watchlist.

Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.