Energy and Basic Materials Rally

April was far from the cruelest month, as hedge funds staged a much-hoped-for rally. Energy and basic-materials funds led the pack, with a 6.68 percent return, and the average hedge fund was up 3.61 percent, according to Hedge Fund Research in Chicago.

When OPEC made good on its promise to cut oil production amid the first signs of a stabilizing economy, oil prices shot up from about $35 per barrel to about $46 per barrel.

B.J. Willingham, chief information officer at Moncrief Willingham Energy Advisers in Houston, reports that the firm’s HedgEnergy Partners fund delivered a 22.49 percent return in April. The $57 million unleveraged long-short fund, which specializes in small-cap exploration and production companies, had been decimated by a year of negative double-digit returns.

“Underneath every one of these companies is oil and gas,” Willingham says, and when prices were “bizarrely cheap” early in the year, below $20 a barrel, “it became a fairly easy decision to press the bet big-time.

“What we knew for sure,” he adds, “was that it costs more than $30 a barrel to produce oil.”

The $123 million RAB Energy Fund, part of London-based RAB Capital, was up 21.7 percent in April, reflecting the rally in equity markets, say co-portfolio managers Mark Redway and Gavin Wilson. The fund, which delivered its best performance since its 2004 inception, invests in small- and midcap energy equities.

“Importantly for the Energy Fund, there were strong signs of an appetite for risk returning, as demonstrated with successful financings [of exploration and production companies],” Redway wrote in his April newsletter to investors. The biggest winner for the fund was London- and Moscow-based Sibir Energy.