Commodity trader hedge funds outsmart standalone rivals

* Funds owned by Louis Dreyfus, Cargill, Trafiguraoutperform * Average commodity fund headed for worst loss in more thana decade * Quantitative easing hits trading models By Tommy Wilkes and Eric Onstad LONDON, Dec 19 (Reuters) - Hedge funds owned by commoditygiants including Cargill and Louis Dreyfus have outwitted theirstandalone rivals in a year of market volatility that hasdisrupted traditional models for oil and metals trading. They have used their knowledge of agricultural markets totrade products that have been less affected by central bankliquidity injections or heightened tensions in the Middle Eastas many other funds have had their worst year in a decade. The $2.4 billion Louis Dreyfus Commodities Alpha Fund, ownedby the eponymous 161-year old French trader, has returned around7 percent to end-November. The leveraged version is up about 15percent, one source who has seen the numbers said. It made money betting on agricultural prices during the U.Sdrought, a devastating period of dry weather across the NorthAmerican farm belt, two sources familiar with the fund said. Black River Asset Management, owned by U.S. tradingbehemoth Cargill, has returned 9.2 percent to the end-Nov. inits Commodity Trading Fund, one source said. "These large houses have a pretty good understanding of theagriculturals markets and these markets were really driven thisyear by fundamental reasons, supply-demand issues, and not bythe macro environment, the risk-on, risk-off trades," GabrielGarcin, a portfolio manager at Europanel Research & AlternativeAsset Management in Paris, said. By contrast, the average commodity fund is heading for itsworst year in more than a decade and is down 3.08 percent toend-Nov., according to an estimate of the Newedge CommodityTrading Index - Trading, one of the most widely-watched. Unprecedented injections of central bank cash and volatilityin the run-up to the "fiscal cliff" - tax hikes and spendingcuts in 2013 that could tip the U.S. into recession - confoundedthe models of many managers trading oil and metals. "This year has been very disappointing, with flat and choppytrading," said Fabio Cortes, head of Macro and Commodities athedge fund investor Oakley Alternative Investment Management. Among the more prominent funds facing losses are ChrisLevett's oil-focused Clive Capital, down 7.8 percent, andMichael Coleman's Merchant Commodity Fund, down 9.06 percent,both to Nov. 23, investors in the funds said. While commodity funds slump, the average hedge fund acrossall strategies is up 4.79 percent, Hedge Fund Research shows. INFORMATION EDGE Big, secretive trading houses - staffed with thousands ofemployees in dozens of countries - have a reputation forunrivalled on-the-ground knowledge of local commodity markets. Geneva-based Galena, which runs $2.2 billion in assets,boasts of an "informational edge" thanks to access toTrafigura's insight into global supply and demand dynamics.Galena made 3.65 percent in its Energy Fund in the first 11months of the year. Others have looked to former employees at trading giants tolaunch new funds. Armajaro, a London trading house specialising in cocoa,hired ex-Glencore veteran John Tilney in 2004 to set upArmajaro Commodities Fund, part of the its asset management arm. The $1 billion fund is up 1.2 percent to end-Nov., aninvestor letter shows, making back some of last year's losses. Across the sector as a whole, commodity hedge funds haveless to shout about. Losses this year come on top of a fall in2011 - a far cry from the annualised 25 percent of 2000-2007. Frustrated investors have also pulled money from poorperformers, including Singapore-based Merchant. Part of the problem for traders has been a struggle tounderstand the impact of central bank quantitative easing onmetals prices. Even as slowing economic growth hit the prices ofsome, the printing presses were propelling others higher. "At the moment it is very hard to break the macro apart fromthe commodity. Commodity prices are increasingly dependent ondecisions being made by elected politicians or unelectedcommittees," Christopher Brodie, manager of the Krom RiverCommodity Fund, wrote in his latest monthly letter to clients. Brodie, whose $730 million fund is down 4.07 percent toend-Nov., cited gold and silver as an example. If governmentsprint more money via QE, precious metal prices should rise, hewrote. But if at the same time they make progress in cutting budgetdeficits - reducing the need for more QE - prices should fall.The mixed impact makes it difficult to predict trajectories. And QE-related events affect more than just precious metals. "Managers didn't understand the impact of quantitativeeasing on commodity prices in the second half of this year,"Cortes said, referring to a QE-stoked rally in base metal priceseven as iron ore fell on signs Chinese demand was stalling. While Galena managed to make money in its Energy Fund, thefirm's Metals Fund is down 5.79 percent to end-.Nov. Three-month copper on the London Stock Exchange hasrisen almost 10 percent since June to around $8,000 a tonne,while the iron ore benchmark 62 percent grade fell from $137 inJune to $86 in September. It has since recovered to $132. FISCAL CLIFF Funds trading a whipsawing oil price also struggled.Heightened worries about the fiscal cliff weighed on prices justas Iran's nuclear program and violence in Syria supportedprices, making for volatile trading. London's Brent crude had risen to as high as $126 abarrel in the first quarter before dropping as low as $89 inJune and then rebounding to today's $108 on signs of progress intalks to resolve the U.S. budget crisis. Andy Hall's $4.8 billion oil-focused Astenbeck fund - runout of Connecticut - was headed for a fall but made money inNov. to leave him up 3 percent for the year. Taurosso Capital's Clive Strategist Fund, which shares thesame London address as Levett's fund, was not so lucky and isdown 4.81 percent to end-Nov. since starting in Sept., a clientletter said. The fund has two-thirds of its exposure to energy. "We had this very strong first half ... The second half ofthe year, it's been more of a mixed bag, and November wasawful," Garcin at Europanel said. Big winners this year should have come out of the U.S.drought. Wheat prices surged 40 percent between mid-June andJuly, while corn rose more than 60 percent between June andmid-August, but most managers were caught off-guard. "Very few people got the drought right," said Tyler Stevensof U.S.-based Commonfund, a firm managing $24 billion in assetswith a small exposure to commodities. All of the funds mentioned declined to comment or could notimmediately be reached to comment. Glencore