Billionaire commodities trader Andy Hall is resolute that oil prices will rise longer-term, even after April's tumble triggered the worst slump in his flagship hedge fund for nearly a year.
Hall's Astenbeck Capital, which manages about $4.5 billion from Westport, Connecticut, suffered a 9 percent decline in April and is down about 5 percent on the year after losing out on crude oil, corn and platinum group metals, according to performance data on the fund obtained by Reuters.
But Hall, one of the oil market's most respected traders, also has a knack of bouncing back as prices rise.
Famed for a $100 million payday in 2008 when his trading company was still owned by Citigroup, Hall is holding his ground on oil prices, citing everything from growing geopolitical risk around Iran to declining Cushing oil stocks as justification for his unbowed bullishness.
"We continue to hold our longer dated oil position with conviction," Hall said in his monthly letter to Astenbeck's investors last week, a copy of which was obtained by Reuters. He said the fund had also added to its positions in corn and platinum group metals.
The April performance was Astenbeck's worst since it lost a staggering 14 percent in May 2012 when oil prices suddenly collapsed in what Hall had dubbed "mensis horribilis".
In its five years, Astenbeck, which Hall runs alongside his oil trading firm Phibro, has lost money only once, ending 2011 down 4 percent. There have also been no reports of investors redeeming their money from his fund despite Astenbeck's lackluster performance since a 28 percent return in 2009 and 12 percent in 2010.
Those familiar with Astenbeck's strategy say the heavy scale of its oil bets, compared with other funds, helps it to erase losses quicker when the market turns around from a bearish patch. The fund closed out 2012 with a gain of more than 3 percent.
"Most people when they are down, will reduce size and reduce risk, and therefore will find it difficult to make a comeback," said Fraser McKenzie, research head at 47 Degrees North Capital, a fund of funds in Pfaeffikon, Switzerland, which runs about $350 million and is invested in a few commodity strategies.
"You have to be really brave to go in with the same level of risk after a losing period," added McKenzie, whose firm is not invested with Astenbeck.
CAN'T UNDERSTAND IT
Hall wrote in his April investor letter that he couldn't understand the brutal sell-off in commodities last month that went against his positions. Benchmark Brent crude sank below $100 a barrel last month for the first time since July last year. Platinum fell by 6 percent in one day while corn prices slid their most in two weeks.
The sell-off had also hurt other funds, including the $865 million Brevan Howard Commodities Strategies, the $530 million Korma River Commodity Fund and the $350 million Higgs Capital. These smaller rivals of Astenbeck are down 2 percent or so on the year, data separately obtained by Reuters showed.
According to a closely-watched hedge fund index published by futures broker Newedge, the average commodity trading fund is down about 0.8 percent on the year through March. The index has not run April numbers yet.
But prices have also rebounded fairly quickly since April's sell-off, with Brent back to near $105 a barrel - justifying some of Hall's bullishness.
Hall said he expected oil inventories at Cushing, Oklahoma - the delivery point for U.S. crude - to begin falling this month, and halve to about 25 million barrels through the summer to reach what he said would be 2008 lows.
"This will provide strong support to the market," he said.
Hall said geopolitical risks in oil, though not as headline-grabbing as before, had not gone anyway, and further tightening of sanctions on Iranian oil is expected through the year, taking more supply off the market and bolstering prices.
© 2016 Thomson/Reuters. All rights reserved.