It all started at the trail end of 2014. Crude Oil fell significantly below the $100 level and kept heading lower. About that time, a friend of a friend asked where he should turn to find a few interesting ways to play a “bounce” in Crude Oil. We obliged, writing “How to Play A Bounce in Crude Oil (HINT: Not $USO),” which included such tongue and cheek advice as covering Harold Hamm’s billion dollar alimony payment and putting a tanker truck of gasoline in your back yard. We also had actual recommendations, such as buying long dated energy futures contracts and investing in a professional commodity trading advisor specializing in energy markets.
A year later in early 2016, Crude Oil continued lower, which resulted with an even larger Google search solutions to investing in the energy market. We obliged, penning “4 more realistic ways to invest in Crude Oil” which included buying up depressed MLPs, buying the energy sector ETF $XLE, and investing in four unique energy focused commodity trading advisors. Anyone can see that MLPs and the energy ETF are up substantially since that post in February of last year – but what about those 4 hedge fund managers who ply their wares in the energy sector? How did they do in what turned out to be a difficult year for many hedge fund strategies?
Quite well, it turns out.
The potential benefit of investing in a full-fledged investment program with exposure to Oil , versus an investment IN Oil, is that you remove the binary aspect. Sure, you’re not going to make money on a 1 to 1 basis with a rise in Crude prices, but you won’t lose it 1 to 1 on further declines, either. You might even make money should the Crude Oil bounce not materialize, either because the funds typically lose less when they’re wrong than they make when they’re right, or because the funds go short Crude – and make money when it goes down! Either way, the idea behind putting money into one of these funds is to get exposure to the moves in Oil, with the ability to make money independent of when and if prices rise or keep falling.
Emil Van Essen is a spread trading program, that seeks to find opportunities in energy markets prices relative to each other on the futures price curve. Jaguar Investments Limited uses a systematic approach to evaluate market mispricing’s over different time periods. Protec Energy Partners spun out of a firm doing physical trading and delivery of the energy markets, hence why Protec have a pure allocation to energy and employs quantitative, options intensive trading strategies. Red Rock Capital is a trend following global macro type system which takes longer term, directional trades in the various commodity markets – including a heavy dose in the energy sector. Here’s their 2016 performance during the initial sell off and subsequent rally for energy prices.
|Energy Managers||2016||2016 Drawdown|
|Emil Van Essen - Spread Trading (QEP)||+18.38%||-1.12%|
|Protect Energy Partners (QEP)||+7.03%||-5.65%|
|Jaguar Investments Limited - Aegir (QEP)||+3.98%||-1.45%|
|Red Rock Capital - Long Short Commodity||-6.09%||-14.85%|
(Disclaimer: Past performance is not necessarily indicative of future results)
Check out the whitepaper on these managers or give one of our alternative investment professionals a call at 855-726-0060 to talk energy markets in the year ahead or discuss managers to keep your eye on. There’s a lot of talk about a rebound in the commodity sector in 2017, with people calling for a climb in commodity prices. And typically, when people use the term “commodities,” what they really mean is the energy markets (Crude Oil, Natural Gas, Gasoline). What if they’re right? What if they’re wrong? We like the hedged ability of these managers to give exposure without living or dying by that exposure should prices fall back down.
QEP = These programs are only intended for Qualified Eligible Persons (QEP) pursuant to CFTC regulation 4.7