Commodity Funds Lag Indices, Hedge Fund Peers

Oct 26 2009 | 1:52pm ET

Despite the big returns, most hedge funds are trailing the broader markets this year. But few hedge fund strategies trail their benchmarks by as much as commodity hedge funds, which often don’t even have the double-digit returns to help them sleep better at night.

The Standard & Poor’s GCSI Enhanced Total Return Index of commodity prices is up 12% this year. But the world’s second-largest commodities fund, Touradji Capital Management, is up only 7% through September, Bloomberg News reports. Krom River Trading hasn’t even managed a positive return, with its raw materials fund down 8.1%.

By contrast, the average hedge fund has returned about 17%, according to several industry indices, while the Standard & Poor’s 500 Index has surged more than 19%. According to Hedge Fund Research, the average commodities hedge fund is down 3.2% through September.

Most commodity managers were unprepared for the huge swings in commodity prices this year, Bloomberg reports. Copper prices have doubled this year, while oil has surged 58%. The gap between hedge fund returns and commodity returns is the highest in four years.

Not all commodity funds are hurting. Touradji’s commodity index is up 48% this year, for instance. And Krom River has begun a late rally, returning 3.2% this month, Bloomberg reports. Both funds can also point to their positive performance last year: Krom River gained 37% and Touradji 8.6% in a year when the average hedge fund posted double-digit losses.

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