Q1 – Blazing into 2024
The first quarter of 2024 set a promising tone for the year. January kicked off with a solid 4.3% return, driven by successful short positions in sugar and continued gains in pound sterling, and soft agris, namely cocoa and coffee. These strategic moves allowed us to capitalise on market trends and build a strong foundation for the year.
February’s performance was robust with an +18.0% return, as cocoa soared past the US$5,000 per tonne mark, driving our returns higher. This upward momentum was fuelled by the soaring cocoa price, robust market conditions, and our astute positioning.
March continued the exceptional trend with an outstanding +40.4% return, highlighted by significant climbs in cocoa and currency trades in British pound-Japanese yen. Cocoa’s impressive performance was propelled by strong demand and supply constraints, pushing prices to unprecedented levels. Following a benchmark interest rate hike from the Bank of Japan for the first time in nearly two decades, our pound-yen position climbed due to the divergence in monetary policy with the Bank of England, driving the pound higher. The long exposure to cocoa was further rewarded as it hit a record of US$10,000 per tonne in late March. The strong performance resulted in further inflows of capital. This strategic funding and market timing showcased our ability to navigate and capitalise on evolving market dynamics effectively.
Within the realm of broader market trends, the first quarter was characterised by heightened volatility and significant geopolitical tensions, which had a profound impact on commodity prices. The rally in soft agris, particularly cocoa, was underpinned by supply chain disruptions and adverse weather conditions in major producing regions. Furthermore, the rate hike by the Bank of Japan marked a pivotal moment in currency markets, leading to substantial movements in British pound-Japanese yen trades. The assumption that cocoa prices would continue to escalate became axiomatic, driving confident positioning in this commodity.
Cumulative Q1 Return: +72.8%
Q2 – Volatility and Strategic Pivots
The second quarter brought mixed results while navigating market volatility. April’s modest +1.8% return was marked by a continued uptrend in cocoa to record highs of US$12,250 per tonne, followed by a sharp pullback. Such gyrations are axiomatic of certain markets achieving record highs before a return to normality with significant pullbacks, despite being in an overall uptrend. Gold reached new all-time highs of US$2,427 per ounce on May 15th, driven by heightened inflation fears and geopolitical tensions centred around regional conflicts in Russia-Ukraine and Israel-Gaza-Iran. Long setups on sugar, coffee, and silver, along with new positions in aluminium and copper, showed promise, although our equity experienced fluctuations. The rally in gold was fuelled by heightened inflation fears and safe-haven demand, while crude oil prices were supported by expectations of rising global demand amid the conflicts. Our strategic positioning allowed us to capture some of these trends.
May presented small challenges with a -4.0% return. Declines in prices of coffee and copper, highlighted the inherent volatility in the markets. Ongoing sugar shorts proved beneficial, while new positions in wheat and oats were poised for potential advanced breakouts. Despite these efforts, our equity faced setbacks, ultimately declining after retreats in gold and copper prices.
June delivered a +6.5% return, predominantly owing to a long exposure in cocoa’s two consecutive day surge around mid June, and partial hedging of the subsequent downside collapse with short positions. This strategic manoeuvring underscored our resilience and adaptability using long-short strategies during in turbulent market conditions and ending the quarter on a positive note.
Cumulative Q2 Return: +3.9%
Q3 – Navigating Turbulence and Seizing Opportunities
July presented a challenging environment with a -4.8% return due to significant market turbulence. The portfolio excelled on the rise of pound-Japanese yen, but the subsequent crash, which was not adequately hedged against, negatively impacted equity. Despite this setback, the month closed with a spike in cocoa, providing some recovery. Geopolitical tensions and market instability influenced these movements, underscoring the importance of agile and responsive trading strategies.
August, however, was a stellar month with a +23.4% return. Cocoa’s resurgence from an initial drop to US$7,650 per tonne, rebounding back to US$9,500, drove the portfolio higher. Exposure to rising gold and palladium prices also contributed to positive returns. Additional capital inflows further boosted positions, reflecting confidence in the approach. Market trends showed increasing investor interest in precious metals as safe havens amid global uncertainties.
September maintained strong momentum with a +16.7% return. Despite cocoa collapsing to US$7,800 early in the month, it soon recovered. The portfolio moved into a new short position on British pound-Turkish lira, capitalising on the monetary policy divergence between the Bank of England and the Central Bank of Turkey (or TCMB), which also offered exceptional swaps. We also returned to long positions on coffee anticipating a medium-term positive outlook on “kava” after a two-and-a-half-year consolidation and basing period, benefiting from broader bullish trends in the soft commodities market. Further deposits and strategic trades drove portfolio equity to record highs. This quarter highlighted our ability to navigate market volatility, strategically leverage funding, and capitalise on emerging market opportunities, ensuring sustained growth.
Cumulative Q3 Return: +37.1%
Q4 – Tale of Two Extremes
The final quarter of 2024 was characterised by a tale of two opposites: exceptional gains and significant challenges. October’s +3.9% return reflected cautious optimism amid geopolitical tensions and fluctuating equity levels. Cocoa experienced several fluctuations, finding support at lower levels, while crude oil showed upside potential amid the Israel-Iran conflict. New short trades in the British pound-Turkish lira accumulated positive swaps, and additional funding throughout the month propelled the portfolio. Losses in silver, crude oil, and zinc were offset by gains in palladium, nickel, and coffee.
November was an outstanding month with a +39.3% return, driven by significant gains in soft commodities, particularly cocoa and coffee’s continued climb to new highs. The portfolio took on new exposure to cryptocurrencies, amid renewed optimism in the sector following Trump and the Republican win in the US elections. The portfolio reached an all-time high, buoyed by fresh inflows commensurate with its outstanding performance. Market sentiment during this period was bolstered by a favourable political outlook and increased investor confidence in risk assets.
December faced erratic and gyrating market conditions which adversely impacted the portfolio, resulting in a -29.4% return. Although the broader crypto market experienced a correction, soft commodities offered some reprieve. Gains in cocoa and coffee mitigated some of the impact of cryptocurrency declines, showcasing strength the portfolio’s diversified approach. This strategic positioning allowed the portfolio to steady the course and finish the year with a positive outlook for 2025.
Cumulative Q4 Return: +2.3%
Concluding remarks
Reflecting on 2024, the year was marked by extraordinary achievements and valuable lessons. The portfolio navigated significant volatility with strategic precision and resilience. From the robust start in Q1 to the exceptional gains and challenges in Q4, the commitment to seizing opportunities and managing risk remained unwavering. The cumulative annual return of +152.4% showcases the astute positioning and agility of the strategies employed. Looking ahead to 2025, confidence in the ability to capitalise on emerging trends and navigate market complexities remains strong.
2024 Calendar Year Return: +152.4%
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5 January 2025
Boris Bosanac
PINETA CAPITAL
