For decades, Blenheim Capital Management found fame and fortune making bold bets in commodities that were flying under the radar. Now, some of the fund’s alumni are doing the same with rhodium — a little-known metal that’s soared 500% in two years.
Rhodium, which is used by carmakers to help filter toxic fumes in the exhaust system, was one of the first trades James Tatum made after joining Blenheim in late 2017, he said in an interview. The portfolio manager moved the position to Valent Asset Management after Blenheim closed last year.
The trade stands out not only because rhodium has seen one of the most spectacular rallies in commodities, but it’s an obscure and illiquid market, so figuring out how to trade it isn’t easy.
“It’s a very old-school investment,” Tatum said. “It’s a physical market, making it difficult to short, and you don’t have algos trading it.”
“You buy it, hold through volatility and then reap the harvest,” he said.
Tatum said Valent is considering setting up a separate specialized fund for green metals, like rhodium, that are tied to the low-carbon economy and in short supply.
Rhodium prices have surged to a record $10,775 an ounce, making the metal seven times more costly than gold, because of a combination of rising demand and very limited supply. Tougher emissions standards mean carmakers need to use more of the metal in catalytic converters. But it’s not easy to find additional supply because rhodium is produced as a byproduct of mining other metals.
Tatum said he tapped contacts in the physical industry to find the material. He declined to give specifics about the investment, beyond saying it was a “high-conviction trade” from the start.
“We added it to it early on,” Tatum said. “For most of the holding period, while we have not changed the relative exposure, its rapid appreciation has required that periodically we reduce the position to avoid over concentration in the portfolio.”
There’s a chance rhodium prices will fall in the short term, but the long-term picture is still good, Tatum said. The market will stay in a deficit in the coming years and it’s unlikely automakers will switch to cheaper metals, like platinum, he said.
“It’s very possible there is still room above these prices,” he said.
(By Elena Mazneva and Mark Burton)