Energy And Commodity Hedge Funds Post Big Gains As Prices Skyrocket
Oct 20, 2021
As the globe faced an energy shortage, hedge funds that bet on a major recovery for commodities saw their gains rocket in the first nine months of 2021.
According to data source PivotalPath, the average global macro commodities hedge fund gained 23.2 percent in the first nine months of the year, while the typical equity energy hedge fund gained 12.3 percent.
During the epidemic, lockdowns and limited travel, as well as a move to renewable energy, led to underinvestment in oil and gas at a time when fossil-fuel demand was rebounding quickly, driving up fuel costs globally.
Brent oil futures touched a three-year high of $85 a barrel last week. Natural gas and electricity costs have risen dramatically, notably in Europe, where benchmark wholesale gas contracts at the Dutch TTF platform were up 400 percent from the start of the year earlier this month.
Those markets, notably natural gas, have been very volatile this month, with volatility gauges reaching new highs. Natural gas provided substantial returns to trend-following hedge funds in September, according to UBS.
Westbeck Capital Management, a London-based long-short hedge fund with $230 million in assets under management, earned 17.2 percent in September, increasing its year-to-date returns to 94 percent, according to a business spokesperson.
According to its August investment letter obtained by Reuters, Westbeck headed into September with long bets on exploration and production firms, notably in Canada, including Canadian Natural Resources, Baytex Energy Corp, and MEG Energy Corp. The summer downturn in oil and oil stocks, according to the fund, was a terrific buying opportunity.
Odey Asset Management, located in the United Kingdom, earned 40% in its long-short equities fund, which also trades on commodities, between January and October. Auspice Capital, a computer-driven commodities-focused fund based in Canada, with a year-to-date return of 30.5 percent.
"Demand may decline in the coming decade as the globe converts to renewable energy," said Tim Pickering, the fund's chief investment officer. "However, in the near term, $100-150 oil is not off the table," he said. "Oil is cheap when inflation is taken into account. Volatility is expected to stay high."
Andurand Capital Management, located in London and Malta, has had a fantastic year, with one of its two funds up 83 percent so far this year following a strong 20 percent jump in September, according to Reuters.
According to experts, the current investor stance allows to rise further. According to the Commodity Futures Trading Commission, managed funds hold a net long position on the NYMEX of about 327,000 U.S. oil futures.
According to RBC Capital Markets statistics, this is still considerably below the level of bullishness seen this summer, allowing potential for more investors to build long positions.
"I absolutely expect we'll go to triple digits," said David D. Tawil, interim CEO of Centaurus Energy and co-founder of New York-based event-driven hedge fund Maglan Capital.
The lifting of coronavirus limitations, growing inflation, and increased winter demand, according to Tawil, who declined to disclose his performance statistics.