A primer on commodity hedge funds

Abstract

This article aims to describe the universe of long-short commodity funds and to identify the style that generates the highest α. We construct an extensive database of 683 active commodity hedge funds, covering the January 2000-December 2010 observation period. Each fund is allocated to one of three styles: long-short futures, long-short equities or funds of funds. Overall, we show that all commodity styles generate αs against the investigated commodity benchmarks. Furthermore, long-short futures managers show the highest αs and Sharpe ratios and the lowest volatility relative to the other styles. © 2012 Macmillan Publishers Ltd.