Lipper: Tough First Quarter For Commodity Funds

Date: Monday, April 22, 2013
Author: Claire Milhench, Reuters Hedgeworld

Commodity funds took a beating in the first quarter, with the average actively managed fund in the Lipper Global Commodity sector down 1.83 percent, as market volatility provided no clear direction.

A cross-commodity sell-off in mid-April led by safe-haven gold has since compounded the pain. Gold plunged about 13 percent over April 12 and Monday [April 15] — its worst two-day fall in 30 years.

Commodity prices as indicated by the Thomson Reuters-Jefferies CRB index fell nearly 2 percent in the first quarter, but were down almost 6 percent after Monday's rout.

"Commodity markets were erratic and mostly headed lower," said Brian Ziv, co-manager of the William Blair Commodity Strategy Long/Short Fund, a multi-manager fund that came tenth in the Lipper league table. Lipper is a unit of Thomson Reuters.

"Choppy markets are hard to trade. But bear markets do not particularly bother the fund, because we invest long and short," Mr. Ziv said.

The CS Commodity ACCESS Strategy Fund, which came fifth in the Lipper league table, is another long/short fund that managed to make money on both sides of the market. Nelson Louie, global head of commodities at Credit Suisse Asset Management (CSAM), and Christopher Burton, head of portfolio management, commodities at CSAM, said the fund was generally underweight or even short gold during the quarter.

This helped it outperform its peers when gold fell due to U.S. dollar strength and reduced demand as a safe haven. Gold exchange-traded products suffered global redemptions of $9.2 billion in the first quarter as investors switched to equities.

The largest sector contributor to the fund's outperformance was livestock, where the fund was also generally underweight and at times held a short position.

"Livestock fell more than 6 percent during the quarter, due to decreased demand for U.S. exports," Messrs. Louie and Burton said.

Theresa Gusman, head of commodities at Deutsche Asset & Wealth Management, also cited a significant underweight position in agricultural commodities, particularly wheat and corn, as a contributor to outperformance. The DWS Invest Commodity Plus Fund came fourth in the Lipper league table, up 1.48 percent.

Both corn and wheat came off sharply at the end of March after a U.S. Department of Agriculture report showed a larger-than-expected corn stockpile and high annual plantings for corn and wheat.

But very specialist funds also did well in the first quarter, as some individual commodities bucked the trend.

Mr. Ziv said his fund's best performance came from a sector-specialized trader who participated in strong cotton prices. Cotton was up almost 17 percent in the first quarter. Over half of the William Blair fund is invested with commodity-sector specialists.

The top-performing fund in the first quarter was also a specialist: the SafePort Strategic Metals & Energy Fund is a small fund with a concentrated investment in physical rhenium. This is found in small quantities in copper and molybdenum mines and used in aircraft turbines.

Dr. Juerg Schatz, chief executive of Perfect Management Services, which manages the fund, said rhenium is scarce, whilst demand from industrial buyers such as aircraft manufacturers, is growing steadily. However, the market is small by its very nature, and so cannot absorb large capital inflows.