In recent newsletters, we’ve talked a lot about what success means in managed futures. Our conclusion was that success includes drawdowns, with managed futures usually moving in a sort of ‘three steps forward/two steps back’ type of pattern. After all- what goes up must come down some (unless your name is Bernie Madoff). While most investors cringe at the idea of investing in a program that isn’t performing well at the moment, it’s during those times that we get excited.
The way we see it, if performance is relatively cyclical (with run-ups followed by drawdowns, followed by run ups, and so on), the drawdown period is where you can get the biggest potential upside (for a more technical explanation, see here). Many of our clients have us scan our expanded watch list of CTAs looking for an opportune time to enter into a solid program in a drawdown – and one such opportunity is upon us now with Clarke Capital’s Worldwide program.
Based on our estimates, the Clarke program is currently in the midst of an intramonth drawdown of -23.64% (down approximately -11% in May) from the November 3, 2010 high. Compared to their max end of month drawdown of -26.06%, this looks like an attractive entry point to us in anticipation of a reversion to the mean in their performance.
The program has history going back to 1993 (under the name Domestic Diversified), when the models were first developed for US markets, and in 1996, it began to include international markets, earning it its current name. Throughout its history, the program has had its fair share of ups and downs, but has continued to excel during the good times (past performance is not necessarily indicative of future results).
For those investors looking to break the costly ‘in at the top/out at the bottom’ cycle (or for those lucky few who already understand the power of looking to ‘get in at the bottom/out at the top’), the current entry point for Clarke Capital Worldwide looks to be a great opportunity.