Investable indices are distorting commodities and futures

Tue May 7, 2013

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Especially for investors in VIX futures, indexers have had a substantial effect.


The pricing of commodity and futures markets is no longer in keeping with historical patterns. It is easy to blame these changes on post-financial-crisis fears, risk on/off behavior and other macro-related market concerns, but hedge fund Lake Hill Capital Management thinks the distortions are the result of investable indices.

Lake Hill's analysis, presented in a recent letter to investors, is reminiscent of hedge fund manager Michael Masters'  critique of indexing, a view that earned him national prominence in 2008 when he testified to Congress that index speculators were responsible for much of the rise in commodities prices.

Masters recommended that Congress eliminate investable commodity indices. Lake Hill doesn't take a political stance, but its analysis does serve to caution investors that with indexing here to stay, many old ways of profiting from fundamental data aren't.

Lake Hill Capital Management - Mar 2013 - Investor Letter - AR

Lake Hill Capital Management is a New York hedge fund and private investment management firm specializing in quantitative and relative-value trading in derivatives markets.