* 34 new commodity funds through May, lowest since H1 2006
* Only two new "discretionary" funds, both by same trader
NEW YORK, June 24 (Reuters) - Commodity fund launches have slowed dramatically, heading for an eight-year low, data from industry tracker Preqin showed, after years of weak returns and some high-profile fund failures in the commodities sector.
In the year through May, some 34 commodity funds were launched, the fewest since the first half of 2006.
Last year, there were 89 commodity funds launched worldwide in the first half, Preqin's data showed.
Commodity funds have had only one year of positive returns since 2010, according to industry data. In this environment, portfolio managers have been reluctant to attempt fund raising while many investors remain unimpressed with returns.
Preqin's data showed that as in previous years, this year's launches were mostly of "systematic" funds that relied on computer-generated signals to trade. There were 32 launches through May of such trend-following funds, which typically buy when commodity prices rise and sell when they fall.
The other two funds opened this year were of the "discretionary" type, more of a traditional hedge fund in which a portfolio manager makes all trading decisions. Both discretionary funds were launched by the same manager, Mazin Mirza, a former Goldman Sachs and Lehman Brothers trader.
"The current environment is challenging for everyone, but there are opportunities for certain products," said Mirza, who launched the funds in February. His New York-based firm Elmbank Capital Management relies on the relative value trading strategy that pits one commodity against another.
The average commodity hedge fund tracked by Chicago's Hedge Fund Research was down 2.7 percent through May, despite a polar vortex that swept energy prices sharply higher in the first quarter and a rally in niche markets such as coffee . HFR data shows the average commodity fund's only positive year in the past four years was in 2012.
While oil and gold prices have started moving higher lately on jitters about the conflict in Iraq, they were relatively rangebound in earlier months, keeping significant amounts of institutional cash on the sidelines.
While commodities have languished, money has flowed into equity markets as U.S. stocks have surged to record highs.
Some big but poor performing commodity hedge funds have closed in recent years, further hurting sentiment. This month, London-based Schroders shuttered its Opus commodity fund, citing a "challenging market".
(Reporting By Barani Krishnan; Editing by David Gregorio)