Commodity Hedge Funds Ending In Tears

Posted by Bull Bear Trader | 8/16/2008 06:10:00 AM | , , , | 0 comments »

We always hear about gold trades "ending in tears" due to the rapid swings of the yellow metal. As some are finding out, apparently gold is not the only commodity with a volatile price (see WSJ article). Declining prices recently have some commodity-specific hedge funds deep into negative territory. As an example, the Ospraie Fund has suffered from bad trades on energy and natural resources stocks, resulting in a loss of roughly $1 billion from a fund that had peaked near $3.8 billion in assets late last year. The fund declined more than 13% in July alone. Back in 2006 the fund lost almost 20% from bad trades attempting to guess the direction of copper prices. Yet before 2006 the fund had returned annual gains of around 18% since 1999. Just yet another reason that asset or fund returns should be compared against some type of reward-to-variability ratio, such as the Sharpe ratio or Treynor ratio, among others, to help determine if you and your portfolio can stomach the swings.