LONDON – (Reuters) – Funds betting on commodity price moves have lost money every month since January, their joint longest losing streak on record, raising more doubts about their ability to make money at a time when the commodity “supercycle” may be over.
The average fund slid 3.58 percent in the first six months of the year, according to a widely watched Newedge commodity index. Funds have only suffered five consecutive losing months once before, in 2002-2003, the index shows.
Hedge funds market themselves as capable of making money in all markets, yet funds trading commodities as varied as gold, grains and gas, have failed to turn an annual profit in the last three years.
The weak performance will put more pressure on the industry to lower fees and introduce clawbacks, which enable investors to reclaim some performance perks paid to hedge fund managers in boom times if the returns they hope to achieve fail to continue.
Worries about cooling demand in key markets like China, and a huge shift in the supply-side from shortage to glut, has sent prices tumbling in recent years, and left many warning that the end of the commodity “supercycle” – the long period of rising commodity prices – is here.
“Historically most of these funds have been a levered beta play on the commodity cycle, or in some cases arbitrageurs of commodity spreads,” Michele Gesualdi, portfolio manager at hedge fund investor Kairos, said.
“The end of the supercycle has hurt the first area, while the volatility and discrepancies that have arisen in forward markets have made life difficult for the second.”
Adding to the sector’s woes, hedge funds which trade other asset classes such as equities have rebounded this year, including those that trade mining and energy shares.
The $1 billion fund of Clive Capital, a firm which trades oil and ran about $5 billion at its peak, is down 3.5 percent to June 28, performance data shows. Krom River’s Commodity Fund has lost 4.4 percent to end-June, while Brevan Howard’s Commodities Strategies Fund is off 2.5 percent to June 28.
Funds trading bullion are nursing some of the heaviest losses. Gold has tumbled this year on expectations the U.S. Federal Reserve will cut back on its money-printing programme, which had driven gold to record highs.
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