Managed Futures: 2014 Review & 2015 Outlook

We’ve said it before, and we’ll say it again… We’re not in the business of predicting where markets will go, or what Manged Futures performance will be like in 2015. However, that’s not to say there aren’t lessons to be learned and knowledge to be gleaned in looking back over the past year, analyzing market conditions, volatility, and other factors, and then discussing the outlook for those factors in the new year and beyond.

Our 2014 review starts in the obvious place, rehashing Managed Futures come back year, where it posted its best performance since 2008. But we quickly find it wasn’t a “textbook” volatility expansion / stock market crisis period environment that gave Managed Futures its boost. In fact, 64% of futures markets actually experienced a decrease in market volatility, per our measure of the average true range.

Volatility Increase Decrease in 2014(Disclaimer: Past performance is not necessarily indicative of future results)

How did they perform so well, when the ranges of many markets declined?  We dig into that question and analyze the much different volatility expansion in the second half of the year, as well as analysis of the US Dollar move and how beneficial that was to Managed Futures; before switching our gaze to the year ahead.

Should people expect a repeat? What markets might see volatility expand or contract this time around? What is going to happen to the energy and US Dollar trends that are still pushing through into 2015? Download our Managed Futures 2014 Review & 2015 Outlook for our full analysis on the asset class.

 

Crude Oil Wrapped Bacon (and Beef)

The first month of 2015 has been anything but dull in the futures markets. Many point to Crude’s Unbelievable sell off, or the Swiss Franc shooting up around 25% against the U.S. Dollar, but what we’re noticing down here on the front lines of commodity trading is the meat markets big run up might finally be coming to an end.

(Disclaimer: Past performance is not necessarily indicative of future results)

The meat markets are some of the more interesting futures markets to discuss, because there are so many factors outside of the usual stuff covered on CNBC that can affect prices. One example of why the cattle market is oversold via cattlenetwork.

“While most agree that cattle futures are oversold, the futures weakness creates a sharp contrast to high feedlot breakevens, which will continue rising for another month or two.  Feedlots are facing negative margins with cash prices lower than breakevens and even weaker Live Cattle futures contributing to moderate feeder cattle demand at this time.”

Meanwhile, there was debate over whether a recent policy “Country-of-Origin-Labeling” or COOL  handed down by the U.S.D.A. is what halted demand for higher priced meat products. The explanation via Farm Futures.

“COOL did not cause the declines in livestock exports to the United States, which largely coincided with a substantial global economic downturn that sapped demand for more expensive meat products,” notes the study, authored by C. Robert Taylor, Ph.D., an Auburn University Professor. The study, released by the U.S. Cattlemen’s Association, builds on an ongoing dispute between the U.S. and Canada and Mexico regarding COOL. The two countries say it violates World Trade Organization regulations.

Whatever is happening in the feedlots and international trade agreements – it’s hard to ignore that a big part of what’s going on is strength in the US Dollar. Meats, like Oil and nearly every other commodity, are priced in US Dollars.  That means, all else being equal – a rise in the Dollar would mean a decline in beef prices to keep equilibrium. This doesn’t make sense to non economists, and those in the US, who don’t usually think of the dollars in their pocket appreciating or depreciating. But it’s there nonetheless… with a strengthened dollar buying more meat, oil, and other goods than it did a year ago.

An interesting end note… Live Cattle is coming off of its highs in a more volatile way than normal. Since it’s high in December, Live Cattle is down -13.00% {Past performance is not necessarily indicative of future results}, and has experienced 3 limit down moves since the start of the year, (4 since December). Imagine what that percentage could be without limit moves?

While trend followers enjoyed the move up in 2014, and have been slowly recognizing this move down… this market is really the purview of Specialty Traders and Ag Traders. Download our complimentary Ag Traders Whitepaper and Specialty Traders Whitepaper, to learn more about how these traders use their experience in the field (literally, in a field with boots on) to ascertain what all the different data points mean for specific markets.

10 of the Best Managed Futures Programs of 2014

Best of 2014We’ve been talking about Managed Futures 2014 performance a bit in this space… after it took 2nd place in the 2014 Asset Class Scoreboard (beating out the ever so popular U.S. Stock asset class).

But managed futures investors typically don’t invest in the asset class, they invest in managed futures programs (and funds). They invest in real managers doing real trades with real money. Which brings us to… the top such managers (by returns only) last year. Now, some of these yearly numbers will make you look twice, they sure did for us.  And we will make sure to say that one year’s performance doesn’t make a track record. It’s just as important, if not more so, to look at risk metrics like the all time maximum drawdown we list below, and to see how the program does year over year on a risk adjusted basis. But, these are some impressive yearly numbers, so we’ll give some credit where credit is due.

(Disclaimer: past performance is not necessarily indicative of future results. Programs listed consist of those with at least a 3 year track record tracked by Attain Capital Management for investment by clients via managed accounts and do not represent all available programs in the managed futures universe.  The Max DD represents the worst drawdown of all time for the listed programs).

Top 10 CTA's of 20142014 RORMax DDMin. Invst.
Purple Valley Capital - Diversified Trend88.58%-49.34%1,000,000
Dreiss Research Corp. (QEP)85.89%-51.44%1,000,000
Mulvaney Capital -- Global Markets (QEP)67.37%-45.02%10,000,000

Silicon Valley Quantitative -- UQP Small65.80%-41.61%200,000
Tactical Investment -- Instl. Comm. (QEP)50.06%-41.51%10,000,000
Somers Brothers Capital -- Diversified Futures49.49%-33.56%800,000
Schindler Capital -- Daily Advantage 48.98%-41.49%100,000
KeyQuantSAS -- Key Trends (QEP)46.19%-19.15%10,000,000
Southwest Mngd -- Global Diversified 44.94%-32.79%200,000
Ancile Capital -- Global Markets42.75%-16.18%1,000,000

(Disclaimer: Past performance is not necessarily indicative of future results)

P.S. — If we didn’t have that 3yr track record min requirement, this program’s +200% annual return would’ve been at the top.

P.P.S. — While December seems all but a memory, we would be remiss if we didn’t mention the the top 10 list for the month gone by, as we’ve done all year. Here’s December’s winners:

Top 10 CTA's of DecemberDec. RORMax DDMin. Invst.
Futures Trade AG - Swing Trading14.60%-29.15%250,000
Westphal Trading -- Trend Following10.00%-26.10%500,000
Tactical Investment -- Instl. Comm. (QEP)9.92%-41.51%10,000,000
Mulvaney Capital -- Global Markets (QEP)9.05%-45.02%10,000,000
QMS Capital -- Global Macro (QEP)8.73%-11.27%25,000,000
Mark J. Walsh & Company - Standard 8.65%-43.04%2,000,000
Hyman Beck & Company -- Global (QEP)8.50%-33.24%1,000,000
Vail Trading -- Mosaic 8.40%-20.98%4,000,000
Silicon Valley Quantitative -- UQP Small 8.06%-41.61%200,000
MN Xenon -- Managed Futures 2X (QEP)7.56%-35.04%2,000,000

(Disclaimer: Past performance is not necessarily indicative of future results)
Image Courtesy: CFA Institute

Alternative Links: The Swiss Franc

Swiss Franc:

David Harding on the Swiss Franc Move – (CNBC)

The Swiss (Franc) isn’t that Neutral – (Attain Alternatives Blog)

Hedge Funds Dodge Shock Move From Swiss National Bank – (ValueWalk)

Podcast:

Michael Covel Interview with Meb Faber – (Trend Following Radio)

Trend Following:

Managed futures funds shine anew, but mystery remains – (Investment News)

10 Myths about Momentum Investing, Squashed (Momentum is not Trend Following) – (Quant Investing)

Alphametrix:

Futures regulator dogged by questions on conflicts, governance – (Crains Chicago)

Commodity Funds:

After harsh commodity fund shakeout, even the winners see tough times ahead – (Reuters)

5 Reasons This Crude Move is Unbelievable

It’s been one amazing sell off in Crude Oil; so amazing we can’t stop writing about it. We’ve covered the long term picture of Crude, The Best Tweets from Crude’s Drop, How to Play a Bounce , and everyone else’s  articles on crude. But we can’t stop staring at it… We’re the commodity focused moth to the proverbial flame.

But why is this sell off so amazing? What’s special about it?

1.  The sheer velocity. How incredibly steep and unrelenting this down trend has been, for starters:

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A History Lesson in the VIX and Volatility

Happy Martin Luther King Jr. Day! It’s an important time to remember one of our nation’s great American heros, what he advocated for, and his accomplishments.

On an unrelated note, this three day weekend is a painful reminder in the investment space… after a huge volatility spike… which was what some say was the beginnings of what later became the financial crisis if 2008-2009 {Past performance is not necessarily indicative of future results}. Last year, we covered this six year anniversary, and we feel it’s important to revisit each year. Here’s “A Different Kind of History Lesson (The VIX).”

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The Swiss (Franc) isn’t all that Neutral

While the East Coast was just waking up from a long nights slumber and the West Coast was still dreaming of Oscar nominations, the supposedly neutral Swiss detonated the biggest bomb the financial markets have seen in quite some time. A surprise attack of sorts as they decided to depeg the Swiss Franc from the Euro, which it has been attached to since September 2011, with little to no warning given. For any traders or managers out there with Swiss exposure, this is a morning they’ll remember for the rest of their careers…

The Swiss Franc spiked by almost 30% against the Euro, and around 25.40% against the US Dollar index in just hours, moving from under 1.00 to over 1.22 between 4 AM and 5 AM EST.  

Here’s the Swiss Franc against the USD in 5 minute intervals.

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