A Golf Clap for Reporting on “Commodity Hedge Funds” by Attain Capital
We’re not going to lie, when surfing the web, researching what others are writing about the Alternatives world, it typically turns into a post by us because, other articles that either conveniently leave out essential information or purposefully leave out information because otherwise the article wouldn’t make sense. Managed Futures and alternatives have been getting a bad rap over the past couple of years, and we’ve spent far too much time “setting the record straight.” We thought it might be a good idea to highlight a major publication (The Wall Street Journal) for doing a decent job capturing the climate of “commodity hedge funds” this summer. What are we talking about?
Commodity Hedge Funds are finally getting some “good press” lately, as for the first time in 9 months, they’ve seen positive net flows into funds, according to the Wall Street Journal.
Has including ESG become a necessity for investors?
ESG (environmental, social, governance) has become a hot topic in recent years, especially lately with the debate over whether pension funds should be able to factor in ESG when choosing investments. At Morningstar's recent conference, the firm argued that ESG has become a requirement for long-term investors. Q2 2020 hedge fund letters, conferences and more Read More
(Disclaimer: Past performance is not necessarily indicative of future results)
It’s certainly not difficult to write a headline about commodities lately, whether we’re talking crops taking a nose dive, the meat markets at all time highs, or coffee showing the biggest move of any of futures market. But the article’s not just talking about asset flows and the “current climate.”It’s talking trends, and unique return drivers, and the ability to make money whether prices are rising of falling.
“Some investors and managers peg the recent surge in volatility to the reduction in the Federal Reserve’s stimulus program, which is thought to drive investments in so-called hard assets such as commodities. Others contend the disturbances are due to supply-demand fundamentals unique to each market.”
In any case, the price swings allow sharp traders to make money in both directions when they correctly anticipate either rising or falling prices.”
They even understand that it’s not all rainbows and lollipops in commodity trading, noting that you can get caught on the wrong side of the trade when prices reverse:
“In the first months of the year, performance in commodities beat that of stocks as drought in Brazil boosted coffee prices, a virus killed millions of pigs and oil supplies dwindled at the benchmark U.S. delivery hub in Cushing, Okla. Those trends reversed in mid-June, with the GSCI commodity index dropping 10% in the last two months.”
Armajaro Asset Management LLP, the London-based hedge-fund firm that was historically one of the biggest players in the so-called soft-commodities market, which includes coffee and cocoa, also scored in that area, according to an investor update. But wrong-way energy bets cut deeper, and the $1.1 billion firm’s main fund is in the red for the year, people familiar with it said.”
The recent inflows are likely related to the recent positive performance of commodity traders, which have enjoyed the down move in grain markets, and more recently – the selloff in metal prices. While they only quote the Newedge Commodity Trading Index as being up about 3%, that is a month end index which is likely up a bit more after commodity traders we track seeing good performance here in September. (note that the index is different from the Newedge CTA index… in that it’s a sub index covering trading strategies “typically involving physical commodity products.”) Past performance is not necessarily indicative of future results.
For more on commodity specific trading, see the following… and check out our white paper on Ag Traders.
“The Managed Futures Blog is a compilation of thoughts, research, attempts at humor, and more from the team at Attain Capital Management (“Attain”). Attain pairs high net worth individuals, RIA’s, and institutional investors with alternative investments in commodities, managed futures, and global macro strategies through privately offered funds and managed accounts. Click here to sign up for their insight and analysis.”