By Chanyaporn Chanjaroen - Jul 2, 2010
Commodity hedge funds are trading more frequently and making bets for later in the future to avoid “getting whipped” by index funds, according to Edwin Garcia, a manager at Man Group Plc, the largest publicly traded hedge-fund company.
Assets under management at index-tracking funds rose 71 percent to $111 billion by the end of May from December 2008, according to Barclays Capital. That “influx of the index money” contributed to price swings in nearby futures, prompting hedge funds to trade more later-dated contracts, Garcia said.
“What the index money has done, it meant hedge funds have had to adjust their trading strategies,” Garcia said in a phone interview on June 29. “Where the managers have strong fundamental views, they are expressing their view further out the curve to avoid getting whipped in the front end.”
Commodity hedge funds lost 4.9 percent in the first five months on average, after declining about 3 percent in 2009, according to Chicago-based Hedge Fund Research Inc. The S&P GSCI Total Return Index tracking the net amount investors received dropped 12 percent from January through May.
Hedge funds are also using more options, Garcia said. On the London Metal Exchange, the world’s largest marketplace of copper and aluminum, trading in options contracts for the six major industrial metals soared 64 percent in May from the same month last year, according to figures on the exchange’s website.
Man Commodity Strategies Ltd., with $1 billion under management in commodity and energy funds, declined 2.7 percent in the first five months, according to information from Garcia. The annual return has been 9.3 percent since the fund started in October 2003. Man Group has $39 billion in assets.
Garcia has been with Man for 11 years, with six years as a portfolio manager. He manages five funds of funds, including Dexion Commodities.
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