Blue Creek Capital Management’s Bill Baruch

Synergizing commodity and equity trading

Hamlin Lovell
Originally published on 17 October 2024
  • (L-R): Oliver Sloup, VP and Co-Founder, Bill Baruch, President and Founder and Phillip Streible, Chief Market Strategist, Blue Line Futures. Oliver Sloup and Phillip Streible are also Managing Directors at Blue Creek Capital Management and Bill Baruch is Founder and CIO at Blue Creek Capital Management.

Blue Creek Capital Management’s Metals Alpha Program has received The Hedge Fund Journal’s CTA and Discretionary Trader award for Best Performing Fund in 2023 and over 2 Years ending in December 2023, in the Discretionary Metal Trader strategy category. Founder Bill Baruch also featured in The Hedge Fund Journal’s 2024 Tomorrows Titans report on rising star hedge fund managers. He boasts 20 years of experience as a professional trader and has established three related firms. 

Baruch’s career started in investment banking, but he found the pace too slow, developed a real passion for trading with a particular focus on precious metals and relocated to Chicago to move into commodities in early 2007: “This was a well-timed trade – had I stayed in investment banking I would have likely been out of a job. At commodity broker Lind Waldock I caught the boom in oil, gold and silver as well as some agricultural markets. I worked with some very smart individuals and studied how markets operated, how people react to different market scenarios, and developed a very discretionary approach that builds on experience. I picked up what works, what does not, developed my own strategy, and I am not trigger shy”. 

Commodity trading made me a better equity trader, and equity trading made me a better commodity trader.

Bill Baruch, Founder and CIO, Blue Creek Capital Management

Having always traded commodities, Baruch started trading equities professionally in 2019 and finds the two complementary: “Commodity trading made me a better equity trader, and equity trading made me a better commodity trader. Commodities are inherently leveraged and market timing is crucial, therefore, my strengths had to become sizing positions properly and decisive risk management. Equity trading has helped me with my patience and modelling. Managing both asset classes really helped me connect the dots and mature as a trader. One great example is that I was always good at understanding sentiment, but realizing how a manager in securities allocates to their models and mandates helped me visualize ongoing forces that can drive markets”.

Baruch should not be pigeonholed into a bullish or bearish box for either asset class: “People who found me on CNBC the last two years think I am a tech bull and people who know me from Chicago think of me as a commodity trader. The truth is, I am a trader and there is always a bull market somewhere”. 

(L-R): Phillip Streible, Chief Market Strategist, Bill Baruch, President and Founder and Oliver Sloup, VP and Co-Founder, Blue Line Futures. Oliver Sloup and Phillip Streible are also Managing Directors at Blue Creek Capital Management and Bill Baruch is Founder and CIO at Blue Creek Capital Management.

Baruch has created three complementary entities. What started as commodities broker Blue Line Futures in 2017 spawned wealth manager and registered investment advisor (RIA) Blue Line Capital in 2019 and CTA manager Blue Creek Capital Management in 2020. The trio were not the original plan but happened serendipitously in response to evolving investment research and client demand: “While Blue Line Futures brokerage provided coverage to family offices, individual traders, and institutions with hedging needs, I was honing a strategy to launch a CTA and manage money in the commodity space. Blue Line, the wealth management firm, was the byproduct of several factors. First and foremost, modelling my futures and commodities strategy opened the door to modelling thematic equity portfolios. Also, on several occasions, clients had asked if I could do something for them in the securities and wealth space”. 

Baruch has benefitted from some cross-selling and client overlap amongst the three firms: “Blue Line Futures customers who are QEP (qualified eligible persons) hear about the performance at Blue Creek and want to diversify from their own trading. At Blue Line Capital so many people, large and small, do not have a financial plan, a strategically built portfolio, or an end game for their investments. Once we have that type of conversation, it really opens their eyes”.

2023

Blue Creek Capital Management’s Metals Alpha Program received The Hedge Fund Journal’s CTA and Discretionary Trader award for Best Performing Fund in 2023 and over 2 Years ending in December 2023.

Each of the three firms has broad teams supporting Baruch so he can focus on research, investing and trading: “While these are three separate entities, I could not have shifted my focus from the brokerage to managing the portfolios at both Blue Creek and Blue Line Capital without the support from my partners, our management/operations team, and our trade desk”. Blue Line Futures’ co-founder and VP, Oliver Sloup, and its Chief Market Strategist, Phillip Streible, are both Managing Directors at Blue Creek Capital Management and make a great complementary team. Sloup’s expertise is in the agricultural space while Streible’s is more global macro with a strong focus on precious and base metals.

Blue Creek Capital Management

Blue Creek runs three strategies in metals, global opportunities and energy calendar spreads. 

Metals Alpha

The Metals Alpha strategy integrates varying splits of fundamental, technical and sentiment data analysis in a top-down approach. “We start with top-down macro fundamentals and trends in data, which can include inventories and commitment of trader reports on sentiment. We then look at trending signals and other technicals for precision points,” says Baruch.

The strategy seeks to have exposure to gold, silver or copper in a trending market. “Gold has trended the best, consistently setting fresh record highs throughout 2024, followed by silver and copper. Being ingrained in the precious metals space and trading the ebbs and flows of gold, silver, copper and platinum has been a key niche. We know the market and have a pulse on how it trades,” says Baruch.

Balancing copper drivers

Copper has seen something of a tug of war between encouraging long-term narratives and short-term fears of faltering economies. Baruch recognises that, “Positive copper drivers including electrification, onshoring in the US, and the expansion of data centres driven by AI, will support higher copper prices for longer. But like all narratives, it can overshoot on the downside in the near-term or face other macro headwinds like deteriorating economics in China (up until recent stimulus and rate measures). We monitor Chinese futures but pay more attention to the fundamentals coming out of China as a leading indicator on the global economy”.

Gold and silver factors

Baruch has been broadly constructive on precious metals through the summer despite China’s central bank pausing purchases. “From early 2024, we believed USD 2900 to be possible before the end of the year: gold could still be supported by geopolitics and central bank buying. We believe private companies continued buying in China. And the other BRICS central banks, such as India, ramped purchases. Reallocating Russian assets to Ukraine was another tailwind because it erodes confidence in the US dollar. Geopolitical risk, de-dollarization and central banks diversifying reserves are certainly the major drivers for precious metals along with deteriorating confidence in our governments, leaning into frivolous fiscal policy.”

If the fundamental narrative was different, bullish expectations would be tempered: “We are not buying gold if central banks are in a rate hiking cycle, and if gold is technically below the 200-day moving average,” says Baruch, who sees inflation working its way down to the Fed’s target, which has allowed for a rate cutting cycle.  

Trading around core views

The strategy has been long and short at different times and can be more tactical in some markets where liquidity permits: “If we think the trend is strong, we sit with the core position until it breaks. In the more liquid markets – gold, silver and copper – position sizing is much more flexible day to day or week to week to manoeuvre around and generate more alpha. In contrast, liquidity in palladium and aluminium is not terrific so we do not trade around the core position as much,” explains Baruch. 

Opportunistic options and hedges

The core positions are futures while options are used for both protection and leverage. “There can be some leveraged exposure to call structures to capture larger outsized moves in markets such as silver this year. We think silver options are the most efficient use of leverage. If things play out the way we expect, silver should see USD 35-40 before year end,” says Baruch. “We look at option costs differently from a skew trader. We use the skew but if we are super bullish we will own options outright, throttling them to and from vertical call structures,” he adds.

Cash can occasionally be another line of defence. “It is very rare to be purely in cash, though we were a few times and most recently after gold tested USD 2700 in the post-Fed cut,” recalls Baruch. The metal contracts traded are USD denominated, and therefore, Baruch utilizes the Euro and Yen to hedge such risk. “Although shorting the currency would classify as the typical hedge we were positioned long Yen through the core of 2024, calling it the unrecognized Black Swan, and were vindicated,” says Baruch. 

Global Opportunities

The Global Opportunities strategy uses the same investment process as Metals Alpha and was up more than 30% for the year to September 2024. On average the inputs are split 50% monetary, fiscal and geopolitical trends; 30% quantitative analysis and 20% technical, but this is flexible. 

It is estimated that Global Opportunities devotes 40% to metals, 30% equity index futures, 15% energies, 5% interest rates, 5% currencies, 5% agriculture, but this can move around. 

The metals component utilizes gold, silver, copper and platinum, but does not trade palladium or aluminium due to a contract size granularity issue related to minimum investment amounts of USD 250,000 on Global Opportunities against USD 1 million for Metals Alpha. 

Energy spreads 

Rudy Lombard, based in Calgary, Alberta, runs the Energy Alpha strategy, a statistical arbitrage program that trades inefficiencies in crude oil calendar spreads and term structure. 

People who found me on CNBC the last two years think I am a tech bull and people who know me from Chicago think of me as a commodity trader. The truth is, I am a trader and there is always a bull market somewhere.

Bill Baruch, Founder and CIO, Blue Creek Capital Management

Blue Line Futures

Blue Line Futures is an independent introducing broker, working with individuals, family offices, companies and institutions. The client mix is two thirds institutional and one third retail. Oliver Sloup and Philip Streible, who run the day-to-day client management and hedging, worked with Baruch at Lind Waldock. The main part of the business is hedging, especially in agriculturals, energy and metals. “We also offer clients quantitative trend models, and fundamental coverage. We write the research in-house, which partly overlaps with Blue Creek Management research,” says Baruch. “However, as retail clients have become more sophisticated, there has been a tremendous demand for our proprietary, institutional-style, and actionable research. Clients can obtain this for free with an active trading account,” he adds.

Blue Line Capital

Blue Line Capital is a professional investment advisor developing tailored portfolio solutions and dynamic hedging strategies for ultra-high-net worth individuals, other advisors and family offices. Here, the mandates are focused on financial assets and goals-based financial planning. Core portfolios can have various equity/bond splits. “The flagship portfolio is 80% equities and 20% bonds, but those with liquidity needs, it could even be the reverse – 20% equities and 80% bonds,” points out Baruch. Blue Line’s Aggressive 80/20 blend has outperformed the S&P by about 3% annualized since launching three years ago. 

Blue Line’s Opportunistic Equity portfolio makes up 60% of the Aggressive blend. It has owned as few as 25 names and as many as 40. 

In Blue Line Capital’s Concentrated Alpha portfolio, which owns no more than 10 names and can raise up to 50% cash, Nvidia became more than 20% in 2023, with Apple and Microsoft not far behind, reflecting Baruch’s confidence: “We have been vocal bulls of the AI trend, catching it from the very beginning. Our Concentrated Alpha program was +81% in 2023 and leaned heavily into that. I think the possibilities for AI and Gen AI are very large, and we are in the early stages. However, given how dependent our world is on the internet itself, it is tough to say bigger than the internet, but that remains to be seen as new advancements evolve in things like biotech to make our common life easier”. 

The firm takes advantage of the Concentrated Alpha as an overlay to the core portfolios with the goal of strengthening performance in a bull market. 

Weightings are strategic and can be adjusted to lower (or raise) the risk profile of the portfolio. Cash in the core portfolios briefly reached 12% in March and April 2024, whereas the Concentrated Alpha has strategically hit 18% and more multiple times. 

The core portfolios have tended to lean heavy energy, allocating roughly 12% of Opportunistic Equity to the sector, while diversified models have also included midstream exposure. This compares with 3-4% for the S&P 500 index. Baruch’s view that petroleum runs the world certainly gives a nod to his commodity background, but he cites free cash flow levels, M&A, and power demand as spurring outperformance over the longer-term. 

He can also easily eschew some sectors and avoided financials and banking altogether around the start of 2023 for several reasons: “They were not trending very well, and we were aware of their debt profile. They did not respond well to stronger yields. M&A and IPO fees had also dried up”.

Hedging

The strategy has occasionally held S&P 500 and Nasdaq 100 puts to protect downside. “We might sometimes use outright puts or put structures. We would typically layer into a 1% position size in a carefully crafted option structure. This year, we became cautious in May and again in August-September due to several macro, sentiment, and positioning factors,” explains Baruch.

Investors can catch his latest views every week on CNBC.

Disclaimer

Futures trading involves substantial risk of loss and may not be suitable for all investors. Past performance is not indicative of future results. All performance quoted is net of fees and uses accounting and statistical sources the Company believes reliable.