With the global energy crisis still looming over the world, the biggest winners in the financial sector may be those who are putting their money into potential ventures related to power generation and fuel supply. It’s a group that specifically includes commodity trading advisors or CTAs.
One such CTA is Andrew Beer of Dynamic Beta Investments, who also runs iMGP DBi Managed Futures Strategy exchange-traded fund (ETF) whose value surged by around 24% this year. According to Beer, the power sector is currently in the middle of a major shift in leadership and focus – which usually drives CTA hedge funds as many of these tend to capitalize on large-scale shifts in the market.
Within 2022, the global economy went from one with manageable to low levels of inflation to a scenario wherein inflation rates have risen alarmingly within several months. Beer explains that this shift was what drove him and other CTAs to consider investing in the energy sector.
Beer explains that, as inflation slowly returns to more manageable levels thanks, in part, to the recent surge in interest rates, a number of CTAs are seeking ways to cash in on it. Among those involved with ETFs, this calls for gaining a deeper understanding of what trades are going on and then attempting to replicate these at a much lower cost and a more efficient manner in their respective ETFs, essentially offering access to a much wider customer base.
Going Beyond Commodities
Despite their title, most CTAs deal with much more than just the commodities sector.
Many CTAs delve into what is known as managed futures. In the context of the energy sector, this involves buying futures contracts on barrels of crude oil to be held in reserve. While this is commonly done by hedge funds, CTAs tend to do it as well, buying similar contracts on oil futures, but in a more structured and efficient manner.
Currently, the Energy Select Sector SPDR Fund, which monitors power/energy/oil companies listed on the S&P 500, is up by around 4% for the first half of November 2022 and around 68% for the year. Share prices for industry leaders Chevron and Marathon Petroleum also hit record highs as of Friday, November 11th. Meanwhile, US benchmark West Texas Intermediate Crude’s annual value is up by around 18%.