Hedge Fund Strategies Amid Suez Canal Disruptions and Supply Issues

Summary

  • Disruptions in the Suez Canal have led to a squeeze in supplies of oil, grain and numerous other commodities.
  • Five hedge funds have put forward five different strategies for trading during these uncertain times, without making explicit recommendations or revealing trading positions for legal reasons.
  • Among the trading strategies suggested involve options trading, betting on long-term increase in shipping demand, betting on increased volatility of commodity prices, and leverage on the surge of shipping costs in China.
  • Lastly, there is potential benefit in investing in companies affected by supply chain issues.

Cayler Capital Trading Approach

Cayler Capital, a commodities focused hedge fund established in 2019, is considering an options trade involving selling a put option spread on December 2024 oil futures. This strategy can provide a hedge if oil prices drop to a range of $60-$50 a barrel. Furthermore, another part of the strategy includes buying call options that would yield a payoff if December contracts reach $120 in 2024.

Svelland Capital Trading Approach

Svelland Capital, a commodities hedge fund with an approximate size of $400 million, was founded in 2016. The firm is forecasting a long-term increase in demand for shipping companies transporting liquefied for conversion to gas for heating and cooking purposes. This outlook is based on the increased U.S. production, a revival in Chinese demand, India’s economic boom, and a larger role for natural gas in the shift towards renewable energy.

Auspice Capital’s Trading Approach

Auspice Capital, a systematic commodity quant fund with a size of $1 billion, has a wide range of long and short bets within energy, metals and commodities. Focusing on short-term strategies due to uncertain long-term market direction, they have seen rising commodities prices due to the Suez Canal disruptions.

Rain Tree Partners’ Trading Approach

Rain Tree Partners, an equity long/short boutique fund, is anticipating short-term effects from the Suez Canal disruptions. As a result, they are favouring exposure to China’s large shipping companies due to a surge in short-term shipping costs. This has boosted the Shanghai Containerized Freight Index by 120% since December, benefiting China’s container sector.

RiverPark Funds’ Trading Approach

RiverPark Funds, a firm with strategies in equities, fixed income and venture capital, sees the opportunity to invest in consumer companies impacted by supply chain disruptions, such as Nike and Lululemon, due to possible inventory excess that could address short-term logistics issues. Electric vehicle manufacturer Tesla also appears as an attractive buying opportunity amidst expected production slowdowns.

The financial implications of the continuing turmoil in the Red Sea region have significant effects on a range of assets, including oil and grain futures, as well as selected equities in shipping, consumer goods, and auto manufacturing. These emerging trends are worth noting for traders and investors alike, as they present unique opportunities amidst the uncertain market conditions.

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