(Repeats Friday story with no changes to text)
* Gas funds tripped up by surprise price moves on weather
* Favorite Oct-Jan spread play in natgas disappoints
* Top fund Velite up 22 pct year-to-date vs 51 pct in 2011
* SandRidge up 7 pct through Oct vs 14 pct last year
* Sasco down 7 pct year-to-date vs 25 pct gain in 2011
By Barani Krishnan and Joe Silha
Dec 14 David Coolidge may still be the king of
U.S. natural gas hedge fund managers but his $2 billion Velite
Capital has made less than half of last year's money while one
of his biggest rivals is headed for a loss in an unusually
tricky year for traders.
Andy Rowe, former trader at Citigroup's Smith Barney,
also has a much smaller profit to show for this year than in
2011 at SandRidge Capital, another gas-focused fund in Houston.
In Westport, Connecticut, Todd Esse, once a star gas trader
at Sempra, is trying to avoid the first annual loss at his Sasco
Energy Partners -- which until last year was one of the best gas
funds, with four straight years of gains.
Calling prices in the $40 billion gas market correctly is
never that easy, given that it's one of the most volatile
commodities after electricity.
This year has been particularly arduous, investors and
market sources said. After making most of their money in the
first quarter with a bearish bet on gas, the three funds spent
the rest of the year trying to retain those gains with varying
levels of success.
The three hedge funds declined or did not respond to
requests for comment. Information on their returns was gathered
from investors and market sources that track their performance.
Many funds were tripped up in the last two quarters by
unexpected price swings caused by dynamic weather shifts in key
U.S. consuming regions, which primarily drive demand for gas
used in heating and cooling.
Prices have more than doubled to almost $4 per million
British thermal units since hitting ten-year lows in April.
"It's not surprising to see returns down," said Chris
Kostas, senior gas analyst at Energy Security Analysis Inc in
Massachusetts, which conducts independent research on energy
"It's been difficult to make any kind of money with the
sideways trade we've seen for much of the year," Kostas said.
Volatility itself is often welcome by gas traders as huge
moves in their favor can result in millions, even billions, of
dollars of profit, like those once earned by John Arnold, the
market's biggest name ever.
Arnold, who retired in May after 17 years as a trader --
seven of them at former utility Enron -- returned over 300
percent to his Houston hedge fund, Centaurus, at his peak in
2006. But position limits placed on U.S. gas futures by
regulators after the 2008 financial crisis crimped his trading
style, forcing the 38-year-old billionaire to close shop.
"SLAM DUNK" THAT DIDN'T QUITE WORK
So what made 2012 such hard work for hedge funds in gas?
Firstly, it was a bet that prices, like last year, would
continue falling from a record supply of shale gas.
They did hit 10-year lows in April. They then rebounded
sharply from mid-spring through summer on unexpected demand from
utilities that decided to burn cheaper gas instead of pricier
coal to help power heaters and air conditioners.
Some of the biggest price moves were also technical in
nature -- counter-intuitive and against what looked like a
hopelessly-oversupplied, long-term bear market. Gas funds
usually base their play on fundamentals, not technicals.
Another blow for the funds was the "short October-long
January" futures spread, a favorite play that didn't perform as
well as thought.
With gas already in oversupply, traders braced for more
inventories to flow in ahead of October while temperatures
remain fairly comfortable, lessening the need for gas usage.
They expected October prices to crumble and January to hold up
in anticipation of colder winter weather that would widen the
spread between the two months.
October prices rallied instead, swept up by the broad
run-up in gas during summer due to record temperatures, and the
"At the beginning of the year, people may have thought that
trade was a slam dunk because the fundamentals were so
overwhelmingly bearish coming out of last winter. That obviously
changed," said Stefan Revielle, analyst at Credit Suisse in New
FEAR CAUSING MISSED OPPORTUNITIES
Funds that started the year on the right foot with their
bearish positions before getting tripped, may be fearful of
going against the market that just hit 13-month highs three
But the inclination to play it safe may have cost some to
miss an opportunity to make more money as a mild start to winter
has already driven prices down some 15 percent from the recent
"The surplus (in supply) has shrunk, producers are raising
their offers and the bulls are betting on a normal winter," said
Mike Guido, managing director of energy hedge fund sales at
Macquarie in New York.
The hedge funds that once shorted the market "are not
willing to sell aggressively again", Guido said.
Coolidge, a two-decade veteran of the market who rose to the
top of his game after the trading restrictions that stifled
Arnold, gained over 20 percent in the first quarter.
The next two quarters weren't as good for him, and Velite is
up just 22 percent through November versus 51 percent for the
whole of last year.
SandRidge, with about $300 million under management, is up
around 7 percent in the first 10 months after 4 months of losses
between July and October. Last year, it rose over 14 percent.
Sasco, which manages about $600 million, gained more than 10
percent in the first quarter before hitting a rough patch.
Through November, the fund is down 7 percent, compared with a
2011 gain of more than 25 percent.
In comparison, the average energy hedge fund on Hedge Fund
Network, a database run by New York's eVestment Alliance, is
down 1.8 percent through November.
Natural gas itself is the sixth-best performing commodity on
the Thomson Reuters-Jefferies CRB index this year,
with the front-month futures contract up 10 percent at
near $3.30 per million British thermal units.
A DIFFERENT ERA AFTER THE BOOM YEARS
While this year's moves in gas may be surprising, they are
nowhere near the peaks and valleys established during the boom
years of the mid-2000 era. In 2005, the market went from a
bottom of $5.71 to a record high of nearly $15.80. This year,
the low was $1.90 and the peak was just $3.93.
"(Volatility) is on the low side right now, which makes it
more difficult for some to trade. It loses its attractiveness,"
said John Kilduff, partner at Again Capital, a hedge fund based
in New York and focused on energy, not particularly gas.
Kilduff said gas funds that faced the biggest challenge this
year were those with a long-only bias.
"The supply glut is making it somewhat difficult in terms of
being almost a one-way trade. Whatever price rise you see is
short-lived and unbelievably weather dependent."
Technicals also matter as much now as fundamentals.
"Any commodity fund that concentrates on micro fundamentals
will tend to miss a technical move," Macquarie's Guido said.
"Fifteen years ago that was an accurate way to study the market
but now the market is so big and there are so many new players
and variables. It's tough to concentrate on one segment."
(Reporting By Barani Krishnan; editing by Andrew Hay)