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Investors turn to new multi-strategy commodity funds

Sophisticated commodity funds that switch between different strategies in pursuit of performance are gaining favour with investors, who have lost patience with single-strategy products. Commodity investors complain they are paying active management fees for returns that are essentially no better than the market as a whole - or "beta" in investment management parlance.

Mark Higgins, managing director of UK-based financial group 1Oak Capital, said some commodity hedge funds persisted for too long with non-performing strategies and have had to close or have suffered large drawdowns as a result. Clive Capital is one such high-profile casualty, which returned money to investors this year and cited limited "suitable opportunities" for its directional, long volatility approach.

"It's impossible to have one strategy that performs in all market environments," Charles Cresteil, a commodity investment specialist at BNP Paribas IP, told investors at the World Commodities Week conference in London in October. Cresteil recommended that investors look for strategies that complement each other and then adjust their allocations to fit the market backdrop.

But investors said this was too complicated and that switching repeatedly was too much work for a small pension fund. Instead, interest is growing in more complex multi-strategy funds, which aim to do this for them. Daniel Bathe, a portfolio manager for the multi-strategy Lupus alpha Commodity Invest Fund, said he had seen an increase in investor enquiries this year as well as decent inflows.

Copyright Reuters, 2013


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