Hedge funds double down on commodity bets with some big gains

Some pump jacks work while others sit idle at the Belridge oilfield on November 03, 2021 near McKittrick, California.

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Hedge funds have stepped up their bets on commodities as prices surged during the geopolitical turmoil, and highly exposed managers are raking in hefty profits.

The energy sector had the most hedge fund net buying last month compared to other equity groups, according to data from Morgan Stanley prime brokerage. The combination of buy and energy outperformance resulted in net exposure hitting a two-year high for the hedge fund community, the data showed.

Commodities have been a clear winner on Wall Street this year as global demand and the war in Ukraine weighed on supply. WTI crude briefly rose above $130 a barrel last week – a 13-year high – as geopolitical tensions escalated. Thanks to the surge in oil, the S&P 500 energy sector has rebounded 30% this year, far outpacing the market as a whole.

Prices of other commodities also soared amid the disruption. Aluminum recently hit record highs, while wheat futures hit multi-year highs amid supply shortages. Nickel prices more than doubled in hours on March 8, topping $100,000 per metric ton amid a massive squeeze. Fuel oil futures have jumped more than 30% this year.

Value-focused hedge fund Equinox Partners, which focuses on precious metals mining companies and exploration and production companies, has returned more than 14% year-to-date, according to a report. person familiar with company returns.

“These are good inflation hedges and good geopolitical hedges,” said Sean Fieler, chief investment officer at Equinox Partners. “There is a longer-term story. Metals are the energy of the future, and I think it will take time for the market to understand that.”

Meanwhile, Soroban Capital has earned at least several hundred million dollars from its commodity bets since February, The Wall Street Journal reported. Soroban did not respond to CNBC’s request for comment.

Other notable investors are also stepping up their efforts in the energy sector.

Warren Buffett’s Berkshire Hathaway continued to acquire shares of Occidental Petroleum this week, taking its total stake in the oil giant to more than $7 billion after the recent wave of buying.

Billionaire investor Leon Cooperman said earlier this week that energy stocks were cheap relative to commodity prices. He said his two favorites are Canadian companies Tourmaline Oil and Paramount Resources.

Hedge funds double down on commodity bets with some big gains

Source link Hedge funds double down on commodity bets with some big gains

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