The average commodity trading advisor (CTA) is down 0.39 percent for the year through October, compared with a gain of 2.45 percent for all hedge funds, according to a new report from London-based data tracker Preqin. However, funds of CTAs have fared much worse, losing 6.18 percent for the year. Systematic CTAs — those driven by computer trading — are down 1.48 percent through October.
The CTA woes come after a promising start to the year, when the average fund rose 3.67 percent in January and 4.29 percent in the first quarter. “Commodity market conditions have made return generation difficult for fund managers over much of the rest of the year to date,” Preqin states in its latest monthly report. “Oil production levels from U.S. shale and OPEC operations resulted in the price of oil dropping to record lows.”
Preqin also notes that a decrease in demand from China for “early stage” metals rocked those markets since it is the world’s biggest metal consumer, touching off a decline in prices for steel, iron ore and copper prices. “U.S. natural gas prices plunged to their lowest levels since April 2012 on the back of large reserves, and a mild start to the 2015 winter has also resulted in reduced demand,” the Preqin report adds. Last year, CTAs posted average gains of 10.85 percent, their best performance since 2010, when they surged 15.70 percent.
Meanwhile, 50 new CTAs launched in the first three quarters of the year. This puts new launches on track to come in at their lowest level since before the financial crisis of 2008. For example, there were 104 launches in 2014, down from around 150 in each of the two previous years. There were 66 in 2006. “The decline in new fund launches may be a result of fund managers focusing on existing products before taking new funds into the currently troublesome market,” Preqin speculates.
Preqin also found that CTAs charge much higher fees than the average hedge fund. For example, management fees average 1.61 percent for CTAs versus 1.49 for all hedge funds, while performance fees are 20.17 percent and 17.78 percent, respectively.
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William Ackman’s Pershing Square Capital Management said it lifted its stake in Valeant Pharmaceuticals International to 9.9 percent, the second time the New York activist firm has added to its position. In the latest round of purchases, it bought stock in the open market and exercised call options. The filings were made in an amended 13D, in which Pershing Square asserts it may take some sort of activist action in the future. The stock was roughly flat on Tuesday, closing at $87.45.
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Shares of SunEdison, the one-time hedge fund darling, surged more than 37 percent, to $4.12, and are up 46 percent in the past two days alone. However, the stock still has a long way to travel to its 52-week high of $33.45. Investors, worried about the renewable energy company’s debt level, were heartened by several announcements made by the Maryland Heights, Missouri company on Tuesday. It said a subsidiary repaid most of the money due on a margin loan. Separately, SunEdison announced it sold to its TerraForm Global unit — an owner and operator of clean energy projects — a series of projects located in India for $231 million.
