Natural gas was the biggest gainer among commodities last year but the hedge fund that has historically led gains in the space had its first losing year, and many others were down double-digits after being on the wrong side of the market.
U.S. gas prices gained more than 26 percent in 2013, the largest rally in eight years as brutally cold weather boosted gas demand. Prices rose, and toward the end of the year, the market saw wild swings in the spread between the March and April gas contracts.
Investors suspect that natural gas hedge funds lost heavily on spread trades of the March and April contracts, after miscalculating winter and spring gas demand and price action.
Prominent funds, from the $1 billion Velite Benchmark Capital in Houston to the smaller Sasco Energy Partners in Connecticut, finished the year down about 20 percent or more, according to industry sources and performance data obtained by Reuters.
"It was a tough year without doubt for most of us. The losses were pretty broad-based," said Kyle Cooper, managing director of research at Cypress Energy Capital Management in Houston, a small $20 million hedge fund that lost 17 percent.
Hedge funds typically do not reveal their book, so it was hard to ascertain the price bets or size of the positions laid out by the gas funds, and the trades where they lost money.
It is also unclear how funds have fared in the first weeks of this year as natural gas futures prices have surged 20 percent so far this month.
Velite ended down 25 percent, according to two sources familiar with its numbers. It was the fund's first loss since its launch in 2006, and was also the most high-profile loss among gas funds. Velite was founded by natural gas trader David Coolidge, 49, who became the top natural gas fund manager after ex-Enron wunderkind John Arnold retired two years ago.
Velite declined comment.
Big price swings are not unusual in natural gas, but the fluctuating March-April spread caught even the most experienced traders by surprise. The spread, known as the "widowmaker" for sharp losses it has caused in the past, gyrated wildly in a 20-cent range in December as forecasters predicted milder temperatures and then arctic-like chills.
In December, the gap between March and April 2014 gas moved from 4 cents on Dec. 4 to 19 cents on Dec. 12, as funds expected inventories to drain by the end of the