The physical metals fund was up more 50% in 2013, while two
other Red Kite funds have also returned double-digit percentage
gains, a source familiar with the matter told Metal
Red Kite bucked the recent trend of weak returns seen from
commodity funds largely because of well-timed trades in the
copper market which returned profits on a drop in copper prices
the first half of the year and a rally in the second half,
other observers of the company said.
After starting the year with a bearish view on the market, Red
Kite began repositioning the fund over May and June
after witnessing a turnaround in physical copper sales in
China, taking a large long position in outright prices, spreads
and physical stocks.
The switch largely coincided with a slump in the copper market
that took prices on the London Metal Exchange to year-to-date
lows of $6,670 per tonne in late June, down 20% from its high
of $8,305 per tonne in February, sources said.
The long position delivered returns as copper prices rebounded
to finish the year up nearly $700 from its 2013 low, but Red
Kite also made strong returns on physical inventory and spreads
as copper premiums jumped in Asia and the LME forward
curve moved into backwardation, market sources told Metal
"The Red Kite switch was definitely up there as one of the big
trades of the year; the volumes were huge," a source active in
the copper market told Metal Bulletin.
At the time, sell-side analysts in particular were turning
strongly bearish on the copper market, reacting in part to
lagged evidence of the slowdown in demand that prompted Red
Kite to run short positions around the start of the year,
"Good data is very hard to come by in the copper market,
and at the time I think a lot of people were trading
looking in the rear-view mirror," one observer of the company
told Metal Bulletin.
In slashing their price forecasts, analysts were also reacting
to a huge increase in mine output during the first of the year.
But Red Kite also took a contrarian view of the supply swell,
predicting that unless prices and treatment and refining
charges rose significantly, smelters would not be sufficiently
incentivised to turn the additional tonnes of copper contained
in concentrates into metal, sources said.
That smelter bottleneck, combined with the increase in end-use
demand in China, helped launch cif Shanghai copper premiums
to more than $200 towards the end of the year.
In addition to the 50% returns on the metals fund, Red
Kite’s Compass and Prospect funds have also posted
percentage returns in the "upper teens", the source familiar
with the matter said, confirming results first reported by
The performance of the funds is likely to boost results for its
2013/14 fiscal year, which ends on March 31.
Net profits reported by RK Capital Management declined
significantly in its last fiscal year ended March 31 2013,
mainly as a result of increased expenses charged by RKX
Services Ltd, a corporate member of RK Capital, after a
50% increase in investment management staff.
Notable among the hires was market analyst Michael Jansen, who
resigned as md of metals research at JP Morgan in June 2012
RKX expenses recharged to RK Capital totalled £4.77
million in 2012/13, up from £1.2 million the previous
year, as the number of RKX investment management staff
increased from 14 to 21, Companies House filings for both
RK Capital’s net profits for the year were
£856,918, down from £11.33 million in the previous
year, as its total administrative expenses rose to
RK Capital’s gross profits during the period were
£7.85 million, down by a third from the previous year,
Companies House filings show.