Betting on Nordic rain pays better than your average Hedge Fund

Jesper Starn of Bloomberg has a nice piece showing how Nordic electricity utilities gave better returns than hedge funds last year.

Getting the weather right was key to Nordic electricity investment companies posting bigger returns than most hedge funds last year.

Nordic Power Trading in Kolding, Denmark, led gains with a 15 percent return, followed by Shepherd Energy Portfolio in Stockholm on 14 percent, according to reports on their websites. That’s more than five times the global hedge fund industry’s average gain last year, according to Hedge Fund Research Inc. 

Low hydropower reservoirs and forecasts for a cold winter pushed up wholesale Nordic power prices by 71 percent between September and November before unusually wet and windy weather caused rates to plummet in a region that typically gets more than half its electricity from water. The price swings spurred the first annual increase in trading volume at the world’s oldest electricity market in eight years. 

“We focus a lot on the weather and the important hydrological balance to find the right combination of risk and reward,” said Lina Petrell, the chief operating officer of Shepherd Energy AB. “With only a small adjustment in one of our strategies after the summer we managed to be on the right side of the price movements.”

Earlier, getting weather right was central to most forecasting models be it economic growth/inflation or company valuations. Just that we have undone all these these basics from any research. Nice to see weather make a comeback…

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