(Bloomberg) — Cayler Capital and Northern Trace Capital were among the energy-focused funds stung by oil’s choppy, rangebound trading last month, which left traders and algorithmic strategies with few opportunities to generate profits.
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Cayler, a commodity trading adviser, was down nearly 9% in May, taking its year-to-date loss to about 13%, according to preliminary results in an investor letter seen by Bloomberg. Much of the loss came from fuel markets, including gasoline. Hedge fund Northern Trace was down more than 1% in May after being up 3% at one point in the month, a person with knowledge of the matter said.
The declines illustrate the challenge hedge funds faced as oil prices muddled along in a range of less than $6 a barrel in May, pushing a key measure of volatility to the lowest levels since 2019. Traders typically count on volatility to generate profits as it allows them to capitalize on dislocations. Even CTAs — some of which rely on global fundamental inputs for their models and are typically agnostic to the overall direction of prices — struggled amid the lack of clear entry and exit points for trades.
Energy CTAs as a group were down about 0.15% in April and 0.12% in May, after two straight months of gains, according to Bridgeton Research Group estimates. The performance is somewhat of an outlier among the broader group as the Bloomberg CTA Hedge Fund Index was up about 4% in April, the latest month for which data is available.
Hedge funds, including the largest multi-strategy firms, increased their presence in commodities over the past two years as Russia’s invasion of Ukraine disrupted commodities flows and stoked volatility. The frenzy of activity has since slowed as markets stabilized.
The beginning of June has seen volatility creep back into the market, particularly after OPEC+ signaled it would likely return some supplies to the market later this year. Demand for crude and fuel in the US is also robust as summer travel season gets underway.
In the wake of May’s losses, Cayler is adjusting how it trades, including pausing activity for three days if monthly losses hit 10% and resuming trading at half the exposure.
“As market volatility begins to normalize, we are optimistic and well-prepared for the opportunities the summer months may bring,” Cayler Chief Investment Officer Brent Belote wrote in the letter.
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