Hedge funds are doubling down on commodities bets with some notching big gains

Hedge funds are doubling down on commodities bets with some notching big gains

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Hedge funds have ramped up their commodity bets as costs surged throughout geopolitical turmoil, and managers with big publicity are reaping sizable earnings.

The power sector noticed probably the most web shopping for from hedge funds final month in comparison with different teams of shares, based on Morgan Stanley prime brokerage information. The mix of the shopping for and power’s outperformance resulted in web publicity reaching a two-year excessive for the hedge fund neighborhood, the information stated.

Commodities have been a transparent winner on Wall Road this yr as international demand and the conflict in Ukraine strained provide. WTI crude oil topped $130 per barrel briefly final week — a 13-year excessive — throughout escalated geopolitical tensions. On the again of surging oil, the S&P 500 power sector has rallied 30% this yr, far outpacing the broader market.

Different commodities costs have additionally shot up amid the disruption. Aluminum not too long ago reached report highs, whereas wheat futures hit multiyear peaks amid a provide crunch. Nickel costs greater than doubled in a matter of hours on March 8, climbing above $100,000 a metric ton amid an enormous brief squeeze. Heating Oil futures have surged greater than 30% this yr.

Contrarian value-focused hedge fund Equinox Companions, which is concentrated on treasured metals miners and exploration & manufacturing corporations, has returned over 14% yr up to now, based on an individual acquainted with the agency’s returns.

“They are good inflation hedges and good geopolitical hedges,” stated Sean Fieler at chief funding officer at Equinox Companions. “There is a longer term story. Metals are the energy of the future, and I think it’s going to take the market some time to get its head around that.”

In the meantime, Soroban Capital made at the least a number of hundred million {dollars} from its commodity bets since February, the Wall Street Journal reported. Soroban did not reply to CNBC’s request for remark.

Different notable buyers are additionally doubling down on the power sector.

Warren Buffett’s Berkshire Hathaway continued to scoop up shares of Occidental Petroleum this week, bringing its whole stake within the oil big to over $7 billion after the latest shopping for spree.

Billionaire investor Leon Cooperman stated earlier this week power shares are low cost relative to commodity costs. He stated his two favorites are Canadian corporations Tourmaline Oil and Paramount Assets.

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