Bullish oil funds lead
hedge fund losers at half-year mark
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[July 14, 2017]
By Maiya Keidan and Amanda Cooper
LONDON (Reuters) - Many of last year's most
successful oil market bulls have seen their winnings dissolve in the
first half of this year, as the crude price has wallowed below $50 a
barrel despite output cuts by some of the world's largest producers.
Three of the top five worst-performing hedge funds in the first half of
the year specialize in trading oil, directly or indirectly, according to
a list compiled by HSBC. Two of those had led the performance charts in
2016.
"The majority of funds came into the year with a bullish view driven by
supply/demand fundamentals," said Fred Ingham, who invests in hedge
funds at Neuberger Berman, adding that the price had fallen since due
partly to a focus on U.S. production.
The oil market has been struggling to absorb a surplus of unused crude
but when the Organization of the Petroleum Exporting Countries and 11
partners agreed late last year to cut output for the first time in eight
years, bulls pushed the price up to a one-year high above $50 a barrel.
But as this year has worn on, OPEC's failure to erase a
multi-million-barrel overhang and shale oil's dominance have become
apparent, stripping 15 percent off the crude price.
Among the biggest casualties so far is the oil equities-focused AlphaGen
Elnath Fund, part of Janus Henderson Investors-owned AlphaGen Capital,
which ended 2016 as the best-performing fund with gains of 78 percent,
the HSBC data showed.
Six months on, however, and it is now the worst performer, nursing
losses of 48 percent.
The firm did not respond to requests for comment but Elnath fund manager
Mark Gordon told Reuters last summer he thought the oil price had fallen
too far and the market had no spare capacity globally.
"I think the oil price will continue to go up because production
globally is falling and that is not sustainable," he said.
Another to call the oil price wrongly in the first half of the year is
high-profile trader Pierre Andurand, who shot to fame with his correct
prediction on the slide in crude from record highs in 2008.
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A bull, symbol of successful burse trading is silhouetted outside
the stock exchange in Frankfurt, Germany, February 23, 2016.
REUTERS/Kai Pfaffenbach
His Andurand Commodities Fund lost 17 percent between January and June,
giving back almost all of 2016's 22 percent gains. David Knott's Dorset
Energy Fund lost 42 percent this year, having pocketed 66 percent last
year.
"Losses in oil have been sizeable this year for specialists like
Andurand," said one hedge fund investor, leading most to reduce their
positions aggressively even though they remained bullish.
U.S. hedge fund firm Elm Ridge Capital Partners, meanwhile, lost 23.67
percent year-to-date after gains of 25.5 percent in 2016.
A spokesman for Andurand declined to comment. Dorset and Elm Ridge did
not respond to repeated requests for comment.
Many so-called "macro" hedge funds, which bet more generally on
macroeconomic trends, also lost money from oil over the past six months,
said Philippe Ferreira, head of hedge funds research at Lyxor Asset
Management.
"Most ... multi-asset macro funds we track have lost money on oil so far
this year because of bullish positions."
Among the losers so far is Conquest Capital Group's Star Fund, which has
a roughly 10 percent exposure to energy. It had lost 3.1 percent in the
six months to June 30 after gains of 17.1 percent last year, an investor
letter showed.
The average macro hedge fund is down 0.8 percent in the first six months
of 2017, data from industry tracker Hedge Fund Research showed, compared
with returns of 3.68 percent for the average hedge fund.
(Reporting by Maiya Keidan and Amanda Cooper; Editing by Dale Hudson)
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