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Commodity-Focused Hedge Fund Indices Exhibit Mixed Results

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Energy sector hedge fund indices

As evident from the below table, funds employing macro and long/short commodity strategies have fared better than funds employing a pure long-only strategy. Commodities in general have not been overly directional as an asset class, contributing to the mixed results shown below.

Despite crack spreads being at three-year highs, a recent article on our website mentioned that the benchmark US Gulf Coast 3:2:1 crack spread fell ~13% to $16.65 per barrel in the week ended June 19, from $19.23 per barrel on June 12. Crack spreads represent the price difference between refiners’ revenues (achieved through the sale of finished refined products) and refiner costs (the price of crude oil).

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The wider the crack spread, the more profitable it is for refiners such as Valero Energy (VLO), Phillips 66 (PSX), Marathon Petroleum (MPC), and Tesoro (TSO). All these companies are components of the iShares Global Energy ETF (IYE) and together make up ~7% of the ETF. All of these companies have spun off some of their midstream assets to form MLPs or midstream companies such as Valero Energy Partners (VLP) and Tesoro Logistics (TLLP).

XOP outperforms peers

As evident from the above table, the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) was the best performer last week in terms of year-to-date returns, while peers, including the Energy Select Sector SPDR Fund (XLE) and the iShares US Energy ETF (IYE), posted YTD (year-to-date) losses. Passively managed energy ETFs mostly underperformed benchmarks such as the S&P GSCI Energy Index and the S&P 500 Oil-Hedged Index.

Leaders and laggards in XLE’s holdings

The coal & consumable fuels subsector was the worst-performing subsector in the XLE last week, while the oil & gas storage and transportation led the pack in terms of trailing weekly returns. The coal & consumable fuels subsector comprises of Consol Energy (CNX), which has a weight of 0.69% in the XLE, while the storage & transportation subsector contains the likes of Kinder Morgan (KMI) and Williams Companies (WMB) with weights of 4.63% and 3.05%, respectively, in the XLE.

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