Most commodity trading advisors (CTAs) apparently got caught unawares by the sharp reversal in commodity prices at the beginning of May. Nineteen of 21 CTAs contained in an investment advisor’s portfolio lost money during the first 10 days of the month. They include well known CTAs such as Winton (down 1.61 percent), Campbell (down 1.82 percent), Chesapeake (down nearly 7 percent) and Millburn Multi-Markets Fund (down nearly 3 percent).
The only two funds to make money in the first 10 days of May were Amplitude Fund Ltd, up 0.30 percent, and CFM Discus Fund Ltd, up 1.71 percent.
Interestingly, all but two funds made money for all of April. The two losers—Eagle Yield and QIM.
So far this year through May 10, just one-third of the CTAs are in the black.
Apparently most of the CTAs that lost money in early May were caught by the drop in many commodities at the beginning of the month. For example, silver slumped about 19 percent during that 10-day period, oil dropped 9.4 percent, gold 2.7 percent, palladium 7.5 percent, cocoa, 7.4 percent, platinum, 5.3 percent, and soybeans, 4 percent.
Why did most managers who specialize in commodities miss the sharp reversal in commodities prices?
One investment advisor laments what he calls “group think” going on. “They forgot the H in Hedge Fund,” he says. “Never seen anything like it in terms of herd mentality. More like Vegas than investing.”
In addition, all three foreign exchange funds lost money in the first 10 days of May after they all made money in April.
To their credit, most CTAs made money in 2008 when most of the investment world—including many hedge fund managers—imploded.
Now, keep in mind that CTAs are systematic traders, relying on computer systems to execute their buys and sells. They are mostly trend followers who don’t have the knack—or the strategy—to immediately discern and then participate in sharply reversing movements in prices.
And to put this in perspective, it is not unusual to see many long-short equity managers to move up and down at the same time, especially many of the so-called Tiger Cubs who worked at one time for Julian Robertson.
Even so, it is interesting that most CTAs lost money from the unexpected drop in commodities prices.
