Andrew Hall’s Westport, Conn., firm Astenbeck Capital Management was one of many commodity hedge funds hurt in May by swings in oil, precious metals and grains.
Multibillion-dollar Astenbeck lost 6.41% in May, bringing its return for the year to a still-strong 10.57%, according to an investor.
“May 2011 will be remembered as one of the more challenging months for commodities,” Hall wrote in a June 1 letter to investors obtained by AR. “Most prices plunged early in the month in a performance eerily reminiscent of last year’s ‘flash crash.’ Markets had, with hindsight, clearly gotten ahead of themselves and were due for a correction, and a correction is what we had.” Hall wrote that the sell-off was overdone and that general economic growth would be stronger in the second half of the year.
Regarding oil, Hall predicted that demand would increase strongly into the third quarter, which, coupled with low supply, would keep prices high. As for gold, the letter said demand for an alternative store of value coupled with low real interest rates would continue to push prices higher. Hall also wrote that sugar and cocoa are now priced attractively after falling in May.
Hall predicted commodity prices will remain volatile during the summer as a result of investor uncertainty regarding European sovereign debt problems and issues surrounding the end of quantitative easing in the U.S., and what he termed a “game of chicken” in Washington between politicians arguing that the government should cut its spending and those who want it to continue to borrow to finance its operations.
“Trying to anticipate market mood swings in response to these factors is probably futile,” Hall wrote, “and we would prefer to focus on the longer-term fundamentals which remain supportive.”
Astenbeck’s May performance mirrors other large commodity hedge funds (see Plunging prices hurt commodity funds).
Astenbeck declined to comment.
