Hedge funds that trade commodities had a mixed first quarter with returns on both sides of the spectrum. One of the best performers so far has been Merchant Commodity Fund with a gain of +11.6% in the first quarter, according to HSBC Hedge Weekly. Merchant, managed by Doug King and Michael Coleman, seems to have finally recovered from the stressful period it suffered between 2011-12. The fund, which in 2010 managed $1.56 billion, saw its assets slump to $132 million. However after a +15% return in 2013, things are going well at Merchant and the brilliant return in 1Q2014 is only adding to the recovery.
Duet Commodities optimistic on China and oil prices
Among the star performers is also the Duet Commodities Fund, managed by Philippe Laraison. The hedge fund has returned 5.13% in the first quarter, according to an investor letter seen by ValueWalk. The fund observed in its monthly letter that demand for commodities in China will rise soon, thus breaking the lull in the market. Laraison also said that there are several directional opportunities in base metals, except for copper, and the fund continues to apply them. He said that the demand-supply equation of oil has balanced:
“An increase in demand for barrels has plenty of room to be absorbed by Libya (if/when supplies are resumed). There is also plenty of demand available to absorb any increase in Iraqi production. Therefore, we expect Oil prices to appreciate by $5 to $10/bbl outside of any potential geopolitical risk premium.”
Assets slide at commodity funds
Brevan Howard’s $820 million commodities fund has managed a gain of +2.9% in the first quarter. The fund’s performance could have been much better had it not lost 2% in March. Krom River, once the frontrunner among managed futures’ funds, has gone through three consecutive years of negative returns. However the Krom River Commodity Fund managed a 1.46% gain in the first quarter. Assets of the fund are now at $230 million, down from $900 million in 2012.
Now the dull story continues with Armajaro Commodities Fund, the flagship portfolio of Armajaro Asset Management. Armajaro ended the first quarter with a -2.85% loss, according to an investor letter seen by ValueWalk. Reuters reports that ACF has lost a quarter of its assets during this year, down from $904 million to $686 million at the end of March. The fund has apparently succumbed to the wave of redemptions that has plagued the commodities strategy. According to the letter, the fund lost in its wheat and crude oil positions in March.
Famous commodity traders like Andy Hall’s Astenbeck Capital have also suffered outflows. Reuters reports that assets fell from $4 billion to $3.5 billion at the end of January this year.