Armajaro Ward's coffee-cocoa fund stumbles after strong start to year

By Barani Krishnan

NEW YORK, Sept 23 (Reuters) - Prominent cocoa and coffee trader Anthony Ward's niche hedge fund stumbled in three of the past four months, giving back a chunk of gains made earlier in the year, the fund's returns showed on Tuesday.

Ward's Armajaro Group in London saw annual return at its cocoa-and-coffee focused CC+ Fund slip to 13 percent last month from 28 percent in April, letters it sent investors and obtained by Reuters showed.

The CC+ Fund is strategically important to Armajaro due to the group's global prominence as a trader of soft commodities, particularly cocoa and coffee. Overall, Armajaro manages just over $1 billion mostly in commodities.

It is also the only fund within the group where Ward is portfolio manager. The veteran softs trader is dubbed "Chocfinger" by the media for his massive bets on cocoa four years ago that helped drive prices to 30-year highs.

Armajaro, which does not disclose the amounts managed individually by its five funds, told investors that its flagship Armajaro Commodities Fund was down 4 percent on the year after losses in precious metals, coffee and crude oil in August.

In his letter last month to investors in the CC+ Fund, Ward did not explain the losses suffered in May, July and August. A representative for Armajaro also declined comment.

But the fund's 7 percent drop in May - its sharpest decline in nearly two years - coincided with a 13 percent drop in prices of arabica coffee. CC+ is believed to have benefited earlier in the year from a massive bull run in arabica as drought in top coffee producer Brazil pushed the market up 60 percent in the first quarter.

Arabica's returns have since paled, with a 3 percent loss in the second quarter and 6 percent gain in the quarter-to-date. On Tuesday, arabica's key second-month contract on ICE Futures U.S. hovered at $1.85 a lb, versus a two-year high of nearly $2.20 in April. For the year, it is up 64 percent.

Ward, in his letter, indicated that arabica might be supported by weaker-than-expected output.

"In our view, the condition of the coffee trees is currently poor. Our surveys in Minas Gerais have already caused us to substantially mark down the potential for next year," he wrote, citing production from Brazil's key arabica region.

Cocoa has rallied with few stops for more than a year, averaging a 2 percent gain a month since May. The second-month contract on ICE hit a 3-1/2 year high of $3,315 a tonne on Tuesday and is up 20 percent on the year.

Ward had a firm crop outlook for cocoa too.

"The crop setting for 2014/15 remains behind last year as excellent setting has so far failed to translate into a larger pod load due to below average survival," he said, citing the crop in top cocoa grower Ivory Coast. (Editing by Lisa Shumaker)