Report: Commodities Hedge Funds Finding Life Harder

Jun 13 2013 | 9:51am ET

The commodities hedge fund industry is maturing, to its detriment, a United Nations agency claims.

The Food & Agriculture Organization has issued a new report, "Commodity hedge funds in retreat?" The paper argues that the growing costs of investing in commodities has "soured" investors, pointing to a 20% decline over the past two years in commodity index funds.

"As with most mature business, commodity hedge funds are finding profitability harder to come by," the FAO wrote. "The sobering truth about the nature of commodity futures may have re-emerged: They are not investments at all but risk-shifting instruments, always generating a loss for every gain."

The FAO said hedge funds finding themselves "saddled with 100% of the losses" may be shying away from commodities. Hedge funds have faced criticism in recent months from those who argue that speculation in agricultural commodities drive up food prices and hurts poor countries.

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