Vermillion Asset Management’s CTA Viridian Ltd. posted losses in March and the fund was down 1.75 percent which brought the detraction for Q1 to -3.35 percent. Commodity strategy has underperformed the highest in this year so far, and as noted by returns from Preqin’s research, CTAs rose only 0.2 percent in Q1. The company’s monthly newsletter says that Vermillion was profitable in last month with gains from agriculture, crude, heating oil, base and precious metals. Performance was down in freight and natural gas. The Viridian Fund manages $1.42 billion, while the firm’s assets are $2 billion.
The CTA is of the opinion that the market environment for commodities is looking up in Q2 and returns will be much better than in Q1. In the agri sector, the sell off in response to USDA reports took away the gains that were shown by some of the commodities. The fund sees the future of corn as healthy in the U.S., attributed to record high plantings. Soybean prices are pressured from large storage levels of the crop and also because soybean prices received additional downward pressure from the South American harvest.
As the CTA predicted in its February letter, natural gas continues to benefit from unusually cold weather but is presseured from increased selling from producers, so prices rose 14 percent in the last month. Vermillion incurred losses in its natural gas bets in March, which was the principal loser for the fund. The fund was profitable in crude and heating oil trades. Heating oil is likely to decline as demand weakens and refinery runs increase in May.
In metals, the hedge fund notes that the sector has lost across the board in the markets after the industrial metals index posted major declines in response to reduced demand in China and Europe. The fund also notes that short bets of hedge funds have reached their maximum in base metals. As we have pointed out in previous articles, not only do large speculators have a net short position in copper futures but hedge funds are also holding several bearish bets in copper miners. One of the reasons for the decline in copper’s price is the record breaking levels of copper inventories. The fund is long on platinum and palladium and expects them to rise even further. The fund lost in gold and silver in February, however the March letter does not mention these positions.
Vermillion is firm on its bullish thesis on the freight market. The CTA thinks that the higher demand for commodities like iron-ore, coal and grains will drive freight rates higher later in the year.