This does not come as a surprise, the doom of commodity trades and hedge funds was written quite a while ago and all or at least most of the blame for their underpeformance goes to China. The much publicized end of the commodity cycle and pressured conditions in the metals and mining sector has pulled commodity traders to their knees. To add further insult to injury, CTAs appeared to take a steep fall as Japan went haywire in May when the Fed dropped hints of stemming bond purchases. FT reports that on average a CTA lost 8 percent in last month. Japan and the Fed’s hints of tapering have collectively brought losses for CTAs, also called quant funds, and other macro traders. 

Correlation between share price and commodity CTAs

CTAs Focusing on Japan’s Risky Trades

According to analysts, CTAs have been attracted by the risky trades and high correlation between share price and credit risk in Japan. Their short term bets in the past several weeks have been the major contributor to the high volatility of Japanese markets.  Mitsubishi UFJ Morgan Stanley‘s analyst Chisato Haganuma noted that CTAs betting aggressively in Japan have changed the behavior of these markets.

Based on this correlation it can be said that June is not going to be any better for CTAs. The Brevan Howard Commodities Strategies is down 3 percent for the year—the fund manages $845 million, according to data from HSBC Hedge Weekly. Armajaro Commodities Fund, with $1 billion under management, was up only 2.5 percent at the end of May. Clive Capital, a commodity trader, saw its assets decline to $1.35 billion from $1.95 billion by the end of March. Clive Fund is down 1.77 percent for the year until May, the decline in May was huge as it wiped out all of its earlier returns. Luck has not been in favor of Clive Capital in the last two years as well. Clive Fund was down approximately 9 and 10 percent respectively in 2012 and 2011.

Christopher Brodie’s Krom River Fund is down 2.4 percent for the year; the fund also performed badly in the last two years with negative returns. Higgs Capital is also down 3 percent over the same period.

The Few Profit Makers

U.S. based Taylor Woods Capital Management has gained 10 percent through the year, owing to its long bets in oil and gas and shorts in metals, according to data from Reuters. Another large CTA, Astenbeck Capital Management, is reported to be down for the year—despite a positive May, the fund could not shake off the 9 percent decline it suffered in April. Astenbeck is down 1.7 percent for the year.

Another good story in the sad tale of commodity trading is Merchant Commodity Fund’s returns—the fund is up 19.5 percent for the year. However it manages only $345 million, a major slide from the $2.5 billion in assets it once held. Another hedge fund which has managed to gain respectably is Oceanic Hedge Fund, up 10.7 percent for the year till May. Oceanic manages $250 million and is commodity focused equity hedge fund.

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