* Average actively managed fund down 5.51 pct in Q4
* Vescore's market neutral fund tops Lipper league table
* Sector rotation into miners may boost equity prices
LONDON, Jan 21 (Reuters) - Commodity fund managers who performed well over the testing final quarter of 2012 believe metals commodities prices could do better than expected in early 2013 due to a combination of Chinese restocking and continued supply disruption.
Managers at Vescore, Investec and BasInvest, who were amongst the few to make money in the fourth quarter, are relatively optimistic about the outlook for commodities going into 2013, tipping copper, platinum and palladium.
"We believe there is a possibility for commodity prices to surprise to the upside due to production consensus estimates being overly generous," said Bradley George, head of Investec Asset Management's Commodities and Resources team.
The improved outlook follows a bruising quarter for many, with the average actively managed commodity fund in the Lipper Global Commodity sector down 5.51 percent, and only a handful making positive returns. Lipper is a unit of Thomson Reuters.
The funds that topped the league table were a mixture of market neutral and hybrid equity and futures funds. These tended to benefit from positions in commodities that rebounded off lows, or avoiding those that went into reverse, like grains.
Two of those that did well - the Investec Global Commodities & Resources Strategy and BasInvest's Basic Star Commodity Fund - favoured metals and dry bulk commodities in the fourth quarter, such as copper, palladium, platinum, coal and iron ore, whilst shunning gold miners.
Both managers believe supply problems and Chinese buying should continue to support these commodities in early 2013.
"Supply disruptions of the past year include labour strikes on platinum operations in South Africa (and) capital delays on copper mines in Chile," said Investec's George.
He believes the consensus may be wrong on platinum and palladium, and that the supply shock in South Africa is potentially bigger than the market thinks.
"Mining companies have sold off stockpiles to offset production losses and this raises the risk of further scarcity in the market from continued labour unrest," he said.
Ronald Wildmann, a fund manager at BasInvest, adds that copper is particularly poor at responding to price rises. "Even if prices increase, you don't get projects coming through any faster. I am very positive because all lights are on green."
On the demand side, the Chinese economy is thought to have bottomed out, raising hopes it will begin restocking. The latest GDP figures show that China's economy grew at a slightly faster-than-expected 7.9 percent in the fourth quarter.
"China has turned ... we are only at the start of the restocking," said Wildmann.
Both George and Wildmann benefited from exposures to iron ore in the fourth quarter, with George citing fund holdings London Mining, Fortescue Metals Group and Northland Resources as outstanding performers.
Wildmann, who was holding Rio Tinto, said iron ore had been bumping along at low levels at the end of September, hit by over-supply and sluggish Chinese demand. This turned around in the fourth quarter, with iron ore prices hitting a 15-month high of $158.50 a tonne in early January.
"This was due to aggressive Chinese buying, as traders and steel mills restocked ahead of the cyclone season in Western Australia, and new infrastructure projects were sanctioned in China for build-out in 2013," George said.
Both managers avoided a drag on performance from gold miners, with George noting that the HSBC Global Gold Mines Index fell 15.1 percent, as miners missed their production estimates.
"Gold mining equities had a terrible Q4," Wildmann agreed. "The physical gold price came off and gold miners were already suffering from huge cost over-runs, delays and problems executing new projects."
Base metal miners are seen benefiting from a pick up in flows from generalist equity managers, which are still under-invested in natural resources. "If a recovery emerges, it's an opportunity for the resources sector to rally," said George.
Wildmann thought the market was just at the start of a sector rotation out of defensive stocks and into mining stocks.
Because miners and oil and gas companies make up a sizeable proportion of the FTSE 100, generalist equity managers who benchmark their funds against it cannot afford to stay on the sidelines if performance picks up.
The top performer in the league table was Vescore's CYD Alpha Commodities Fund, a market neutral fund investing in commodity derivatives. Market neutral funds tend to outperform when long-biased funds do badly as they aim to hedge out market risk.
Florian Schepp, managing partner at Vescore, said some of the fund's outperformance was due to other managers being caught out by the end of the grains rally.
The funds that did well in the third quarter had higher exposures to the agriculture sector. "But that turned around in the last quarter, and we made money there," said Schepp. He noted that wheat prices lost out in November due to weaker U.S. export demand and stronger supply from the Black Sea region.
Like Wildmann and George, Schepp is becoming more positive about taking directional (long-only) exposure in commodities as the environment is now more supportive. "It should be a moderate to good year for long-only indices," he said.