Oil Rally Fails to Lift Commodity Hedge Funds' Returns


Commodity hedge funds are sitting on disappointing returns for the first quarter in spite of one of the biggest monthly rallies in crude oil in years and falling market volatility.

Many multibillion managers have been wary of potential political shocks in the Middle East and a repeat of last year’s May oil sell-off. They have shunned risk over the past three months or lost out by betting that oil markets would become more choppy.

Many of the sector’s leading names have underperformed broader hedge fund peers, which have enjoyed one of their best quarters on the back of rising global equity markets.

Brent crude has risen 15 percent this year while the average hedge fund has earned in excess of 5 percent, according to Hedge Fund Research.

Blenheim Capital, the largest commodity hedge fund, is up 4 percent so far this year.

London-based Clive Capital, which until disappointing losses last year vied with Blenheim for the top spot, has lost 0.63 percent this year. Singapore’s Merchant Capital, which ­manages assets of $2 billion, has returned just under 2 percent. BlueGold was down 2 percent as of the end of February, according to an investor. The fund’s March-end numbers are not yet available.

Fabio Cortes, manager of a commodities fund of funds for Oakley Capital, said: “Some people have shied away from taking big directional bets in oil after they got burned last year in May. Macroeconomic uncertainty is still deterring people from actively engaging on the long side.”

Commodity hedge funds have a reputation for volatile returns, but have been gainers from oil price rises. This year only Astenbeck Capital has performed well. The $5 billion oil trading firm, part-owned by Phibro, has returned 13.5 percent so far.

After a bruising 2011 — the hedge fund industry’s second worst year on record after 2008 — managers of all hues entered the year keen to claw back losses.

Bullishness has also been tempered by memories of the past 12 months, however. The Arab spring and drawn-out eurozone crisis wrongfooted many managers last year who were ill-placed for falling markets after an upbeat 2010.

The average hedge fund manager lost 5.26 percent last year according to Hedge Fund Research.

Many are now weighing the cost of cutting exposure or increasing hedges, against the possibility of further gains if market rallies continue.