Hedge funds struggle with financialisation of commodity markets

Commodity hedge funds need to move beyond fundamentals and get to grips with macro factors and liquidity flows. Many have underestimated the ‘financialisation’ of commodity markets.

It has been another bruising year for commodities hedge funds. As central bank interventions and investor sentiment continue to dictate price action, traders have struggled to capture meaningful returns.

The Newedge Commodity Trading Index returned just 0.14% through the end of August 2012, trailing both the S&P GSCI Index (2.3%) and the Dow Jones-UBS Commodities Index (2.62%). That follows a loss of 3.79% in 2011 for the average commodity hedge fund tracked by Newedge.

For some the challenging