CC+, the cocoa hedge fund of famous trader Anthony Ward, has proven to not be infallible after all. Ward began his fund about a decade ago, and in the intervening years has seen consistent gains, in spite of the 2008 financial crisis and the general turbulence that affects all hedge funds. Now, the manager, associated with Armajaro Asset Management LLP and known far and wide for his skills with buying and selling in cocoa futures, has suffered losses for 2016 that are in the "high single digits," according to a report by Bloomberg. What could this mean for the lux cocoa futures fund world and, more broadly, for commodities and hedge funds in general?
Cocoa Moved Unexpectedly
Ward's historic first loss illustrates that even the most successful and legendary traders experience market shifts that are unpredictable. It seems that 2016 saw some moves in the pricing of cocoa futures that Ward did not correctly anticipate. On the other hand, CC+ also focuses on coffee, and Ward may have regained some of his lost assets with successful bets on coffee. Nonetheless, the net was a loss for Ward's boutique fund.
Ward is apparently not the only trader working in the cocoa futures market to have been caught by surprise last year. Olam International, Ltd. is the third-largest cocoa processor in the world, and in February this company revealed that trading conditions had been unfavorable in the previous months and particularly in the fourth quarter of 2016.
Two Big Drops in Cocoa Prices
There were two major events in cocoa prices in 2016 which threw the industry into flux. First, prices plummeted over a brief period at the beginning of 2016. Even still, though, these losses were minimal in comparison with much more severe declines of about 20% in the final weeks of 2016. In the new year, prices have hovered much lower than their average 2016 levels. The two major drops may have been cased by wind damage to critical crops from the Ivory Coast. When local exporters defaulted, the Ivorian regulator had to re-sell cocoa beans at lower prices, affecting futures prices as well.
Yesterday, London cocoa futures were sitting at approximately a four-year low after net declines of 23% last year. Ward's CC+ fund catapulted its manager to prominence, particularly in a gutsy bet on the London exchange in 2010 which paid off significantly. Cocoa-focused or no, CC+ has not been immune to the broader trends sweeping hedge funds, and has seen its assets fall significantly in recent years thanks to declining profits and investor fatigue. Nonetheless, Ward had always managed to turn a profit until the most recent year. Even the biggest names in the industry are not safe.