LONDON RAB Capital's flagship Special Situations hedge fund has cut its holdings in some commodity stocks after a rebound in markets this year.
However, managers of the once high-flying fund, led by Philip Richards, said they were still bullish long-term.
After a near 10 percent rally in the Thomson Reuters-Jefferies CRB index .CRB between mid-December and end-February, Richards and his team said in an investor letter from its feeder fund RSS.L that the natural resources-focused fund had cut back some positions.
"During the month (of February) the fund took the opportunity to capitalize on the strong markets in order to realise cash," they said in the letter.
The move echoed profit-taking by a number of top-performing hedge fund managers this year, keen to lock in winnings from a first quarter rally after last year's choppy markets.
This year RAB's Special Situations fund has again been one of the top-performing hedge funds, with a 12 percent gain in February and returns for the first two months of 20.9 percent.
The fund sold around one-third of its position in New Millennium Iron Corp (NML.TO), whose shares soared after saying its joint venture with Tata Steel was progressing on time.
It also took profits in Trevali Mining (TV.TO) after a 67 percent rise since the fund invested in November.
However, Richards and his team also wrote that, despite recent fears over the effects of an economic slowdown in China, which has seen commodity stocks pare gains this month, they remain bullish on their positions.
"Clearly markets are discounting a slowdown in China, and maybe worldwide due to higher oil prices. But strangely this has happened while broad indices are rising," the letter read.
"Our view is that our chosen investments in natural resources represent outstanding value and are too cheap right now. We hope to reap the benefit over the next year or so."
The letter also shows that RAB Special Situation's biggest holding, at 22.7 percent of the fund, is Falkland Oil & Gas FOGL.L.
RAB Special Situations, once the darling of the hedge fund industry after returns of more than 1,000 percent in 2003's commodities boom, ran into trouble during the credit crisis, investing heavily in illiquid securities and losing 70 percent in 2008.
It also bought into Northern Rock before the British bank collapsed.
Last year the fund's troubled management firm, RAB Capital, delisted from the stock market after seeing its assets under management slump from around $7 billion (4.4 billion pounds) at the end of 2007 to less than $200 million.
In August RAB said that Richards and Michael Alen-Buckley, the two co-founders of RAB, would invest $30 million of their own money into Special Situations. Earlier in 2011 the firm had said 79 percent of clients wanted to exit the fund when a three-year lock-up ended later in the year.
(Reporting by Laurence Fletcher; editing by Tommy Wilkes and Mark Potter)