Few Commodity Hedge Funds Survive, and Those that Do Prosper

by on November 23, 2013 3:17 am GMT

As commodity funds are bleeding capital losses due to slumping commodity prices, a fund run by Stephen Jamison and George Taylor are rising above the rest. In 467 commodity funds tracked by eVestment, the average loss is 3.5 percent through October, while net-assets fall 10 percent.

However, Taylor’s fund, Taylor Woods Masters Fund, has increased a stellar 18 percent through October, and Jamison’s fund,  Koppenberg Macro Commodity Fund Ltd., risen six percent.

“The managers who have done well have an understanding of financial derivatives, supply and demand analysis, and physical market knowledge,” according to Gabriel Garcin, a fund manager at Europanel Research and Alternative Asset Management. Garcin noted that many fund managers lack an understanding of the psychical commodities market.

In a year with strong, swift moves commodities markets, funds are seeing large losses. Soft commodities are seeing multi-year lows as increased supply drown out world demand. Corn is down 38 percent. Gold and silver are down big in 2013, roughly 23 and 33 percent respectively. West Texas Intermediate crude slumped 5.8 percent last month alone. The Taylor Woods Masters Fund made the majority of its returns in the energy markets with the energy space representing 83 percent of assets in October, according to a letter to clients.

In comparison, the S&P GSCI Index, which tracks 24 commodity futures, fell 3.8 percent year-to-date. This would be the first annual loss for the index since 2008.

George Taylor co-founded his fund with Trevor Woods, who both were with Credit Suisse Group’s commodities team. The 18 percent increase in the fund, with $1 billion AUM, this year followed losses in the previous two years. The Koppenberg fund has a third of the returns as Taylor’s fund but averaged a 5.4 percent return over the previous four years (not including 2013).

Smaller funds also have seen large gains in the commodity space. A small metals fund, Red Kite Group, has $280 million in AUM but has returned 20 percent through October this year. The fund reaped the rewards of shorting metals on the London Metals Exchange, including copper, nickel and aluminum.

In a year of deteriorating commodities prices, select funds have been able to rise above and create returns for their investors. To indicate the cyclical, volatile nature of commodities, 313 out of 500 commodity-based funds closed up shop since 2012, reported the Eurekahedge Pte.