Hedge funds are doubling down on commodities bets with some notching big gains

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Hedge funds have ramped up their commodity bets as costs surged throughout geopolitical turmoil, and managers with large publicity are reaping sizable income.

The power sector noticed probably the most internet shopping for from hedge funds final month in comparison with different teams of shares, in keeping with Morgan Stanley prime brokerage information. The mix of the shopping for and power’s outperformance resulted in internet publicity reaching a two-year excessive for the hedge fund group, the information stated.

Commodities have been a transparent winner on Wall Avenue this yr as world demand and the warfare in Ukraine strained provide. WTI crude oil topped $130 per barrel briefly final week — a 13-year excessive — throughout escalated geopolitical tensions. On the again of surging oil, the S&P 500 power sector has rallied 30% this yr, far outpacing the broader market.

Different commodities costs have additionally shot up amid the disruption. Aluminum just lately reached report highs, whereas wheat futures hit multiyear peaks amid a provide crunch. Nickel costs greater than doubled in a matter of hours on March 8, climbing above $100,000 a metric ton amid an enormous brief squeeze. Heating Oil futures have surged greater than 30% this yr.

Contrarian value-focused hedge fund Equinox Companions, which is targeting treasured metals miners and exploration & manufacturing firms, has returned over 14% yr to this point, in keeping with an individual accustomed to the agency’s returns.

“They’re good inflation hedges and good geopolitical hedges,” stated Sean Fieler at chief funding officer at Equinox Companions. “There’s a long term story. Metals are the power of the long run, and I feel it will take the market a while to get its head round that.”

In the meantime, Soroban Capital made at the very least a number of hundred million {dollars} from its commodity bets since February, the Wall Avenue Journal reported. Soroban did not reply to CNBC’s request for remark.

Different notable buyers are additionally doubling down on the power sector.

Warren Buffett’s Berkshire Hathaway continued to scoop up shares of Occidental Petroleum this week, bringing its complete stake within the oil big to over $7 billion after the current shopping for spree.

Billionaire investor Leon Cooperman stated earlier this week power shares are low-cost relative to commodity costs. He stated his two favorites are Canadian firms Tourmaline Oil and Paramount Sources.