Pierre Andurand wins the 2023 UCITS Hedge Award for providing investors with the best risk-adjusted returns over 3 and 5 years, ending in December 2023.

The UCITS Hedge Award recognises outstanding performance in the hedge fund industry, with some notable previous winners being Quantica Capital, All Spring Global Investments and Nordea Asset Management. 

Commodity speculators/gamblers have the strongest stomachs and are accustomed to wild volatility swings.

An array of factors such as geopolitical tensions and climate change shocks, the fluctuating economic cycles, global central banks’ monetary policy and any other Black Swan event, can quickly turn fortunes into losses and vice versa. 

“Commodity speculators/gamblers have the strongest stomachs and are accustomed to wild volatility swings”

RAY DALIO

Who would have forecast crude oil prices crashing below zero into negative territory in the 2020 global lockdowns to then recover above 80 USD a barrel 4 years later?  

So with that kind of volatility, capturing some of the upside, Pierre Andurand wins the 2023 UCITS Hedge Award with Andurand Commodities Discretionary Fund down 38.1% in 2023, but up by nearly 500% over the prior three years. 

Carbon emissions were also Andurand’s biggest winners in 2021 when the fund caught most of the up move from EUR30 to EUR85 in EUA emissions and California emissions trade.           

Regarding metals, Pierre Andurand rode the nickel bull market up and exited before it crashed in 2022.  He remains bullish on copper believing that demand outstrips supply as the metal approaches its largest-ever shortage. Copper is one of the most useful metals with a wide application in construction, electronics, and defence materials. 

Andurand’s Cayman fund also profited from the 2024 cocoa bull run.      

He sees in 2024 upside tail risks for several commodities for economic, geopolitical and climate change reasons. 

Andurand believes the electrification of mass transport, from E-bikes, E-scooters and EVs will shift some of the demand from oil and gas to metals.  

“Carbon emissions were also Andurand’s biggest winners in 2021 when the fund caught most of the up move from EUR30 to EUR85 in EUA emissions and California emissions trade”

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Currently, spending on oil and gas is about USD6,000 billion a year market, 20 times larger than base metals at circa USD300 billion. 

“There are times when oil does not bring a great risk-reward, but where other commodities such as copper do,” said Andurand.

The green metals narrative around electrification is part of the story, but Pierre Andurand is not bullish on all such metals: “We have been bearish lithium because supply growth is expected to be stronger than demand growth for the coming three years, and then it looks bullish after that,”  he said. If he is right then BTFD in lithium could be a winner. 

“We are moving from a market where we had 500kt/year of mining supply growth and 500kt/year of demand growth, to a market where we will have 1MT/year of demand growth and no mining supply growth” – Pierre Andurand

Andurand’s copper forecasts for USD15,000 a tonne this year and up to USD40,000 within five years are well above consensus forecasts from Bloomberg or sell side banks, which are between USD10,000 base case and USD14,000 bull case. 

Pierre Andurand thinks many sell-side analysts lowball their estimates: “Most analysts tend to be very conservative in their official forecasts in order not to make too many headlines in case they are wrong. They are risk averse, and their focus is to keep their job,” he said. 

“Many do not understand the demand inelasticity and what determines the price. The recent price action of cocoa shows what happens when we have too little of a commodity: prices can explode. We have seen major moves in metals in the past when there was a shortage. The expected copper shortage should be much larger than any shortages we have ever witnessed. That justifies a large price move, not a 10-20% move. Remember that copper is a small percentage of the cost of the end-products that it is used in. 

Supply takes many years to react, and demand is becoming less cyclical and less price sensitive due to the energy transition and the growth of AI data centres,”  he added. 

“We are moving from a market where we had 500kt/year of mining supply growth and 500kt/year of demand growth, to a market where we will have 1MT/year of demand growth and no mining supply growth. 

Already there is a deficit of about 500kt/year this year and next, before growing and reaching millions of tons per year by 2028. 

We started 2024 with less than 400kt of visible inventories. So, there is a greater probability that we will run out of visible inventories sometime towards the end of the third quarter if we do not see much higher prices before then. 

There is about 1.4Mt in the SRB (Chinese strategic stocks), but they will only release some at prices above $10,500/ton, but not much as they know that we are starting a multi-year deficit,” he said. 

Andurand is also bullish on aluminium, to a lesser degree than copper.

“We start with a supply and demand model, which is dynamically updated as we get new data” – Pierre Andurand

Here is a breakdown of the funds as Pierre Andurand wins the 2023 UCITS Hedge Award

Andurand UCITS fund was down 3.7% in 2023 but up over 53% in the prior three years.

Andurand Commodities Fund was down 10% in 2023 but up over 171% in the prior three years.

Andurand Commodities Discretionary Fund was down 38.1% in 2023 but up by nearly 500% over the prior three years.

The highest-risk product, Andurand Commodities Discretionary Enhanced Fund, was down 54.7% in 2023 but up by 657% over the prior three years.

Longer term, stitching together several track records from his career since September 2004, total returns have compounded up to 11,002% as of 28 March 2024. 

He also holds lottery ticket call options at much higher strikes. 

Pierre Andurand wins the 2023 UCITS Hedge Award 2023, but what does he forecast for 2024 and beyond? 

Pierre Andurand relies more on quantitative trading strategies to provide some uncorrelated returns.  

“We start with a supply and demand model, which is dynamically updated as we get new data. We identify the countries where we could see meaningful differences in supply growth and follow them particularly closely. We also identify potential risks to demand and potential supply disruptions. The key is to get to a probability distribution to balance and a most likely scenario,” said Pierre Andurand.