Some investors thrive on volatility

Notoriously volatile commodity markets have seen even wilder swings than usual over the last couple of weeks, scaring some investors who have been drawn to the surging markets over the last few years.

Notoriously volatile commodity markets have seen even wilder swings than usual over the last couple of weeks, scaring some investors who have been drawn to the surging markets over the last few years.

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The volatility has saddled some hedge funds with billions of dollars in total losses, and even put one big commodities fund out of business. But other hardened commodities investors say the volatility presents as much reward as risk.

With the ballooning credit crisis forcing investors in any market to be more protective of capital, commodities face a cash crunch not very different from that facing equities and other asset classes. Sudden market gyrations that threaten to crush wrong-footed investors also can deter participation.

Still, industry data shows funds focused on raw materials — or those that at least have commodities in their portfolios — have weathered the credit crisis better than those involved primarily in equities and other non-commodity assets.

In comparison, funds using the equity hedge (total) strategy were down 8.37 per cent, while funds using the equity (market neutral) strategy were down 0.07 per cent.