Commodities World Capital rides the uptick in metals to breakout performance in June and July

 

Bailey McCann, Opalesque New York for New Managers:

Commodities markets have been a source of significant volatility this year. Beyond the major drawdown in energy, other areas including metals and agriculture have seen increased price action. For commodities funds, performance has been mixed. Some funds have been able to find outperformance opportunities, and Commodities World Capital is one of them. The fund, led by veteran CIO Luke Sadrian is up 5.60% through the end of July.

CWC's fund, which launched in February, is a discretionary absolute return strategy with a metals tilt. Sadrian crafted the strategy based on his more than 30 years trading metals and other commodities in various roles at Moore Europe Capital Management, Brevan Howard Asset Management, and Goldman Sachs. Sadrian uses a mix of fundamental analysis and quantitative trading signals to make position decisions.

June was a breakout month for the strategy after a slow start to the year. According to performance information for investors reviewed by Opalesque, the fund returned +4.30% in June and followed it with a 6.10% return in July. The fund benefitted from the upward directional moves in metals that started to happen as markets rebounded from initial pandemic related volatility.

In a recent investor letter, Sadrian said the fund's bet on copper proved to be beneficial over the summer. "We had a very strong opinion that the copper market would tighten significantly on a China restock and COVID-19 related production disappointments- we were proven correct. The majority of the performance has been crystalized and we come into month-end utilizing approximately 40% of maximum risk levels with a very different product mix to the start of July."

Sadrian notes that copper supply is persistently tight, which will increase valuations as the market for electric vehicles and other devices that need copper will continue to increase over the coming years. There is a similar opportunity for nickel, which also plays a significant role in electric vehicle construction. In the letter, Sadrian suggests that the price of nickel could double or triple over the next few years based on current electric vehicle trends.

Over the back half of the year, CWC plans to re-enter the energy universe - provided price discipline returns to the oil market. If OPEC and other market participants resist the urge to flood the market with supply, oil prices could end the year flat overall - making for a wild roundtrip for investors. Agriculture could also rebound slightly, he says, noting that there is some indication that grains could tick back up toward the end of the year. Supply constraints in soft commodities are also helping to shore up prices and could create new opportunities for investors through the end of the year especially if consumer demand increases.