Leveraged Funds Are a Major Drag on Commodities

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...Adding to the downward pressure are other rumors that "rogue" hedge funds are attacking like sharks when blood is in the water. These predators are allegedly aggressively short-selling the stocks that are in the portfolios of their vulnerable peers, which sends prices even lower...

Leveraged hedge funds are selling billions of dollars worth of commodities investments to meet their redemption demands, and this is another severe short- term factor driving down prices. Our funds own similar stocks, and thus we are caught up in this powerful force that some have described as a "mechanical sell-off" by hedge funds and banks that need liquidity.

Adding to the downward pressure are other rumors that "rogue" hedge funds are attacking like sharks when blood is in the water. These predators are allegedly aggressively short-selling the stocks that are in the portfolios of their vulnerable peers, which sends prices even lower.

These hedge fund sharks don't care about fundamentals or portfolio turnover; they're just short-term traders hungry for a quick profit.

We do care about fundamentals, and the long-term fundamentals for the commodities sector stocks look healthy. These stocks are trading at very low price-to-earnings ratios and at large discounts to cash flow. As we have published in the past and featured in these special commentaries, different commodities rotate in leadership each year; however, long-term supply constraints have not disappeared, and demand from global infrastructure spending continues to remain robust.

Morgan Stanley recently published a research report on the global mining sector that concludes that we are still in the early to middle years of a commodities supercycle. We agree with this viewpoint, given that many of the key fundamental drivers that have sustained this trend remain intact...

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