Energy Hedge Funds Sputter Despite Soaring Markets |
Date: Wednesday, May 21, 2008
Author: Eric Baum, Dow Jones Newswire
Energy hedge fund managers interviewed by Hedge Fund Trades cited various reasons for their weak performance this year. Some have been on the wrong side of oil prices swings, while others have suffered from positions in oil companies and refiners that produced lackluster returns.
(A version of this story also appeared in Hedge Fund Trades, an email newsletter published by Dow Jones & Co.)
An index of energy hedge funds compiled by HedgeFund.net was up 0.12% through April. That performance is worse than passive investments, such as the iShares S&P Global Energy (IXC), an exchange-traded fund managed by Barclays Global Investors, which was up 2.95% this year through
Even then, the aggregate returns mask much weaker performance by some funds, with HFN's index skewed by a handful of investments that achieved double-digit gains this year. Mayer Partners, an energy hedge fund managed by Mayer Capital Management in Hillsborough, Calif., was up 22.42% through April, and Red Bank, N.J.-based Lucas Capital Management's Lucas Energy Total Return Partners rose 14.42% through April. A senior official at Mayer declined to comment, and officials at Lucas did not return calls seeking comment.
Only 19 other funds of the 87 in HFN's energy index have made money this year. FrontPoint Partners in Greenwich, Conn., was down 6.34% through March in its FrontPoint Energy Horizons Fund, and
The energy price swings have been particularly harmful to equity hedge funds that follow market-neutral investment strategies, such as
The fund's long positions were up 6%, but negative performances from short bets dragged the overall performance down 13%. Some of the short positions in transportation were upset when the stocks benefited from interest-rate cuts by the Federal Reserve earlier this year. "There were obviously some bad bets in there, and a lot of them were on the short side," said
To make matters worse, large oil refiners, such as
With Tesoro down more than 50% this year, a number of hedge funds have also stepped in to buy the stock. Decade Capital Management, a hedge fund managed by Millennium Management in
Aletheia Research and Management Inc., a firm in Santa Monica, Calif., that doesn't run an energy hedge fund and manages roughly
Tesoro is poised to rebound this summer if refineries succeed in passing their rising oil supply costs to consumers through higher gasoline prices, said one energy hedge fund manager who requested to remain anonymous. He was short on Tesoro last year and is eyeing a long position because his models show the stock has a higher probability of rising than falling below
While most U.S. energy managers floundered, a handful of Canadian energy hedge funds have handily outperformed many of their U.S. peers. Front Street Capital's Front Street Energy & Power Performance Fund was up 16.92% as of
Full Cycle occasionally hedges individual energy stocks by buying crude oil put options, said Viren Wong, the firm's chief operating officer. The fund may lose money if oil prices rise, but more often it makes money because individual energy company stock prices rise faster than the mark-to-market values for its put options. Front Street takes a slightly different approach by betting against global oil companies, such as
Front Street, which manages
Front Street left the position unchanged while Duvernay's stock gradually climbed to
Some U.S. hedge funds did pick up on another Front Street favorite,
The stock previously rose to
-By
Reproduction in whole or in part without permission is prohibited.
