This Hedge Fund Made 2,100% From World's Most Extreme Market Mania

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wang bing

Wang Bing. Source: Wang Bing

  • Chinese manager rides booms and busts in commodities futures
  • Guli fund shuns complex bets; favors supply-demand analysis

Plenty of professional investors like to tout their talent for turning volatility into opportunity. Few have managed to deliver on that promise as well as Wang Bing.

With deft timing and the magnifying power of leverage, the 37-year-old trader of Chinese commodity futures has navigated the most fevered speculative mania of 2016 to produce the kind of returns that only volatile markets can provide. Wang says his Guli Trend Aggressive Strategy fund has climbed about 750 percent this year, extending an advance since its March 2015 inception to 2,100 percent.

Those gains would stand out in any market environment, but they’re even more remarkable at a time when hedge funds around the world are getting battered by weak performance and client outflows. While many of Wang’s peers have embraced computer-driven strategies in an attempt to gain an edge, the former iron-ore importer says his trades are dictated by old-fashioned analysis of supply and demand. Whether that makes him a long-term star of China’s futures markets or a short-lived outlier, only time will tell.

“There are always more opportunities to make big profits, or big losses if you are wrong, amid wide price swings,” said Wang, whose fund has climbed the most this year among Chinese peers tracked by Shenzhen PaiPaiWang Investment and Management Co., a compiler of domestic hedge fund returns.

Turbulence in Chinese commodities markets has rarely been so extreme. Over a two-month span earlier this year, daily turnover on the nation’s futures exchanges more than tripled to $261 billion -- exceeding the gross domestic product of Ireland. Prices of at least five commodities surged more than 50 percent during the boom, which peaked in April.

The market has been wracked by volatility ever since. Official efforts to restrict speculation left some mom-and-pop investors scrambling to unwind positions, while professional traders have struggled to gauge demand amid uneven economic data in China and the U.S.

This year’s swings in rebar illustrate how manic trading has been. After surging 66 percent from early December to mid-April, futures on the construction material dropped 28 percent over the following month. They then rallied 35 percent until mid-August, before sliding about 10 percent through Wednesday.

Market Timing

Wang says he’s managed to time the big swings almost perfectly. He reversed a short position in rebar at the end of last year as prices bottomed out around 1,600 yuan a metric ton, betting that production cuts would spark a rally. He added to his bullish wager in early April as property and infrastructure investment picked up, then closed out the positions on April 22 just as prices were peaking.

His outsized returns were made possible by the embedded leverage of futures contracts. Their purchase or sale typically requires an initial deposit, known as margin, that’s just a fraction of the value of the underlying assets. That means even small price changes can lead to big profits -- or losses -- for holders of the derivatives.

Wang had recently been betting on higher commodity prices, encouraged by signs that President Xi Jinping’s government would take measures to tackle oversupply. But he closed out the last of those positions on Wednesday, responding to local speculation that producers of coke and coking coal will be allowed to ramp up production. He’s looking to re-open bullish bets on rebar when prices fall to around 2,300 yuan a metric ton. The contracts have risen 31 percent this year to 2,338 yuan.

Sustainability Doubts

“How strongly the government pushes for capacity reduction will decide how much prices go up,” said Wang, whose Guli Trend fund now holds just 49 million yuan ($7.4 million) after he withdrew some of his own initial investment. The fund was started with money from Wang and a small group of clients and is currently closed to new investors, he said in an interview at his Shanghai office.

Not all of Wang’s strategies have delivered such stellar gains. Among his eight funds with returns tracked by Shenzhen PaiPaiWang, none have climbed as much as the Guli Trend fund, with two shown as losing money for investors.

Rebar Rally

“The massive rally on rebar contracts earlier this year gave rise to many splendid returns, but they are not sustainable in the long term,” said Gao Fei, a Shanghai-based analyst at Chinese fund tracker Howbuy.

Wang, who started trading futures in 2008, said he supplements his assessment of commodities supply and demand with simple forms of technical analysis. One of his favorite measures is the 30-day moving average. When prices move above that level, he’s more inclined to bet on gains.

On the rise of computer-driven traders in China’s commodities markets, Wang said his new high-tech competitors have only helped his prospects by exacerbating volatility.

“I have a longer-term approach and hardly do intraday trading,” Wang said. “So overall, high-frequency traders have helped me because they enlarged price trends.”

— With assistance by Gary Gao

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