Moonraker Commodities Fund: Moonraker Fund Management

Best Performing Energy/Commodities Fund of Hedge Funds: Winner

Moonraker Commodities Fund manager Jeremy Charlesworth believes the global economy is "looking down the barrel at increasing waves of inflation over next few years", an event that will play well to the commodities markets as investors seek to diversify away from currencies into more tangible assets that may better hold their value.

Despite depressed economies, recent rises in commodities prices — gold hit a new high of £1,100 an ounce recently — have come on the back of concerns that currencies are depreciating, Charlesworth believes. "People are abandoning currencies in favour of other assets. I don't believe commodity prices should be rising as fast as they are but I understand why, because no-one wants to hold onto cash when they are earning nothing on it."

His own concerns on currency. which he has held since 2003, lead Charlesworth to take the view that gold, which retains its value as an alternative to currencies, "will get to $3,000 an ounce".

With assets under management of £6 million at September 1 2009, the Moonraker Commodities Fund has geographical exposure to just two regions, North America 48.65% and EMEA 51.35%, while underlying strategies are spread between CTA/managed futures 37.71%, cash 26.83% and a minimal exposure to equity long/short.

A physical holding/trading weighting of around a third of the portfolio is the result of taking into consideration all aspects of the commodities space.

The fund's investment objective, over the medium term, is to outperform the DJ-UBS Commodity Index with half the volatility. Charlesworth aims to do so by investing through a portfolio of underlying funds representing a diversified universe of investment strategies and underlying commodities.

Since inception in June 2008 to  August 31 2009 the fund has returned an estimated 21.8% compared to a fall of 40.7% for the DJ-UBS Commodity Index. This it achieved with annualised volatility of 10.3% for the fund compared with 29.8% for the index.

Moonraker's philosophy is to position the portfolio towards the strategies which will profit the most from the imminent economic scenario. "Thus, we are always looking forward rather than backwards and cannot rely on extensive backtested analysis to support our investment decisions," Charlesworth explains.

"We make a point of being able to dynamically shift our assets into strategies which are more likely to profit from the imminent market conditions. To achieve this, we have to keep a high level of liquidity in our funds and have an internal guideline to keep approximately 60%-70%% of the assets redeemable within three months."

Risk management drives the portfolio construction process but not to the extent that it interferes with aspects which are not quantifiable.

Underlying managers are reviewed versus their peer group, market environment and also versus the existing components of the portfolio. The manager's performance is closely assessed against the market environment to ensure that beta risk as well as any potential event risk is well understood.

The fund's risk management platform, NerrenSync, has the ability to track and monitor all entities associated with a particular manager and provides liquidity timeline data which constantly identifies the minimum timeframe to liquidate underlying investments.

Charlesworth flags agricultural commodities as those to watch in coming years. While experiencing falling prices in the past 24 months, demand is set to rise, on a relative basis, Charlesworth believes, as developments in emerging markets see increased urbanisation and populations beginning to demand better diets, while arable land decreases along with soft commodity production.

"It is difficult for us in Anglo-Saxon economies to understand what is happening in Brazil, Argentina, South East Asia and China and how many more people will aspire to enjoy a better standard of living than their parents. But all of that is going to involve the use of commodities."

FUND FACTS: MOONRAKER COMMODITIES FUND

Full name of fund: Moonraker Commodities USD Fund
Name of portfolio manager: Jeremy Charlesworth
Name of investment/management company: Moonraker Fund Management
Contact: Jeremy Charlesworth, 3 Manchester Square, London, W1U 3PB, United Kingdom
Launch date: June 2008
Assets under management: $6 million
Annualised return: 16.65%
Annualised volatility: 10.01%
Strategy: commodities
Share classes: US dollar, sterling
Administrator: Butterfield Fulcrum
Auditor: Baker Tilly
Custodian: Bank of Butterfield
Domicile: Guernsey
Listing: Channel Islands Stock Exchange
Management fee: 1.5%
Performance fee: 15% performance fee above high watermark
Minimum investment: $15,000
Lock-in/up: none
Redemption period: 45 days