Commodity hedge funds have had a troubled year so far, as growth in China has weakened and demand has fallen in most of the related assets. The worst performance in 2013 has built on the already bad returns from 2012, when CTAs suffered through a 20 percent loss in their assets.

Switzerland based $2 billion commodity hedge fund, Tiberius Asset Management’ Tiberius CTA released a special market commentary in which they call equities good, bonds bad and commodities ugly. The adjective implying the worst of all performance in the asset class, evident from the -6 percent loss in the DJUBS Commodity Index.

Tiberius CTA Makes a Timely Short Bet on Physical Gold

What has happened as the result of the continued underperformance in commodities, as pointed out in Tiberius’ analysis, is that some of the investors have called it the end of commodity cycle. The Merrill Lynch Global fund manager survey points out that the allocation in this strategy is at its lowest since 2009. Galtere, a commodity trading adviser, was down 0.39 percent in February. Vermilion Asset Management, another CTA owned partly by  Carlyle Group LP (NASDAQ:CG), lost 2.5 percent in February. Tiberius itself was down in several of its funds in the same period.

Tiberius has been short gold since late 2012 and sees a recovery in the price towards the end of second quarter, after it has declined to as low as 1.15-1.25/ounce . For now it sees no shift in the global fundamentals that will help to anchor gold.

On the subject of industrial commodities, where Tiberius is bullish, the commentary notes that analysts and investors focus too much on finding weak numbers in China’s GDP numbers, despite of the fact that growth there is not too bad. China is at a standstill, where it is neither showing deceleration nor is jumping to any highs.

The same market panic was also noted when copper declined suddenly last week. Apparently everybody chose to focus on China’s lower than expected export numbers despite of the decent imports. Tiberius thinks that the business sentiment is improving in China which is evident from the expected stability in China’s GDP growth. The commodity managers also contend that the demand of industrial metals is going to grow as China cleans up its warehouses.

Tiberius is yet another hedge fund that thinks that the direct effects of the fiscal cliff sequester have been exaggerated. The lower than expected reduction in unemployment numbers and the weaker consumer confidence are considered temporary by the commodity trader, and thus the falling commodity prices are not related to the current state of economy in US. Tiberius also quashes the notion that pursuant to a seasonal trend, commodities will necessarily decline in the second quarter.

The fund advises buying base metals like aluminum, nickel, zinc and lead. Galtere however, is short on base metals. Tiberius is also bullish on platinum and palladium in the long term and sees copper recovering to USD 8.5/ton before the end of the year as demand picks up. The fund is bearish on agriculture commodities, like corn, soybean, wheat.