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Red Kite metals fund gains after timely copper switch

Keywords: Tags  Red Kite, copper prices, copper stocks, backwardation, LME, London Metal Exchange, copper spreads, Mark Burton

LONDON — Red Kite Group’s metals fund posted returns of slightly more than 50 percent in 2013 after switching to a long from a short position in the copper market around the time prices posted their lows for the year, sources told AMM sister publication Metal Bulletin.

The physical metals fund was up more than 50 percent in 2013, while two other Red Kite funds also returned double-digit percentage gains, a source familiar with the matter told Metal Bulletin.

Red Kite bucked the recent trend of weak returns among commodity funds largely because of well-timed trades in the copper market, which returned profits amid a drop in copper prices the first half of the year and a rally in the second half, other observers of the company said.

After starting the year with a bearish view of the market, Red Kite began repositioning the fund in May and June after witnessing a turnaround in physical copper sales in China, taking a large long position in outright prices, spreads and physical stocks.

The switch largely coincided with a slump in the copper market that took prices on the London Metal Exchange to a 2013 low of $6,670 per tonne in late June, down 19.7 percent from a high of $8,305 per tonne in February, sources said.

The long position delivered returns as copper prices rebounded to finish the year up nearly $700 from 2013 lows, but Red Kite also made strong returns on physical inventory and spreads as copper premiums jumped in Asia and the LME forward curve moved into backwardation, market sources said.

"The Red Kite switch was definitely up there as one of the big trades of the year; the volumes were huge," one source active in the copper market said.

At the time, sell-side analysts were turning strongly bearish on the copper market, reacting in part to lagging evidence of a slowdown in demand that prompted Red Kite to run short positions around the start of the year, sources said.

"Good data is very hard to come by in the copper market, and at the time I think a lot of people were trading looking in the rear-view mirror," one observer of the company said.

In slashing their price forecasts, analysts were also reacting to a huge increase in mine output during the first half of the year.

The performance of the funds is likely to boost results for its 2013-14 fiscal year, which ends March 31.

A version of this article was first published in AMM sister publication Metal Bulletin.

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