Commodities trades stung hedge funds this year. It's not stopping firms from piling in.

Core Insights - Commodity traders faced significant challenges in 2025, trailing behind most other asset classes with an average hedge fund return of only 2.2% compared to the overall industry average of 10.7% [3] - The volatility in oil prices due to Middle East conflicts and fluctuating crop prices from tariff policies has contributed to the struggles in the commodities market [2][3] - Despite the difficulties, there is a growing interest in commodities trading as firms seek diversification from traditional asset classes [9] Industry Trends - The demand for commodities trading is increasing, with firms like Citadel and Millennium continuing to expand their operations in this area despite recent underperformance [4][5] - The shift towards physical commodities is seen as a major diversification strategy for 2026, as larger firms and startups look for alpha that quantitative approaches cannot easily access [6][7] - Notable hedge fund managers, including Steve Cohen of Point72, are considering entering the commodities market, indicating a potential shift in investment strategies [8]