Futures vs ETFs (Roll Time)

Here’s our monthly look at the various commodity ETFs and how they track a simple strategy of buying end of year futures and rolling them annually. As we’re here in December, it’s worth mentioning that we’ve already rolled the contracts in our simple strategy, using the last date of October as our roll date.  Using Crude as an example, on 10/31, we would sell the Dec. 2014 Crude contract and simultaneously buy the Dec. 2015 contract, then hold the Dec. 2015 contract through next October.

Plus, we compared Ag Traders and an overall commodity index.

Commodity ETF Over/Under Performance 2014

CommodityFuturesETFDifference
Crude Oil$CL_F
-26.18%
$USO
-27.58%
-1.40%
Brent Oil$NBZ_F
-25.98%
$BNO
-36.19%
-10.21%
Natural Gas$NG_F
-8.80%
$UNG
2.75%
11.55%
Cocoa$CC_F
6.19%
$NIB
3.66%
-2.53%

Coffee$KC_F
55.41%
$JO
58.76%
3.34%
Corn$ZC_F
-16.58%
$CORN
-14.32%
2.26%
Cotton$CT_F
-22.27%
$BAL
-22.95%
-0.68%
Live Cattle$LE_F
28.11%
$CATL
21.00%
-7.11%
Lean Hogs$LH_F
13.62
$HOGS
10.66%
-2.96%
Sugar$SB_F
-13.50%
$CANE
-10.83%
2.67%
Soybeans$ZS_F
-10.64%
$SOYB
-7.96%
2.68%
Wheat$ZW_F
-8.96%
$WEAT
-14.92%
-5.96%
Average-2.47%-3.16%-0.69%
Average without Coffee-7.73%-8.79%-1.06%
Commodity Index $DBC-20.39%
Long/Short Ag Trader CTAs2.90%

(Disclaimer: Past performance is not necessarily indicative of future results)
(Disclaimer: Sugar uses the October contract, Soybeans the November contract.)
Long/Short Ag Trader CTA = Barclayhedge Ag Traders Index)

Make a Kid Happy, Instead of Making us Fat

It’s that time of year again – which means the lights are up, the stores are packed, and people are getting into the spirit of giving. It also means that our office is starting to receive a never ending stream of artery-clogging chocolate covered this and that, blocks of cheese, smoked salmon, baklava, nuts of every shape and size… and did we mention chocolate? This was the scene in our office earlier this week.

death-by-chocolatePhoto Courtesy: geekologie

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6 Takeaways from the Performance of 8 Asset Classes YTD

Our takeaways:

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The Best Tweets on Crude Oil’s Crash

January 2015 WTI Crude just hit 60, and minute by minute, day by day, those people calling for crude to Zero aren’t looking silly after all. Social Media is one of the best ways to get rapid reaction from multiple sources, and see what people are talking about and why. Here’s our crude rapid reaction edition of what we found interesting, important, and entertaining on Twitter ($TWTR). Enjoy.

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The Commodity Super Cycle Ain’t Over – Yet

Great long-form piece by Erik Swarts over at Market Anthropology (we borrowed the title) talking the commodity super-cycle, and how it might not be dead… We’ve talked about it being on the way to the morgue here and here.

Mr. Swarts bases his logic on multiple comparisons to different past market regimes – be it the 1930s – 1940s interest rate regime, the 1970s commodity cycle, or the 1980s stock market breakout; and gets a bit technical both with his charts and the writing:

…when we extrapolate a normalized comparative study – balanced by momentum (RSI and stochastics) signatures across the complete run of the 1971-1980 boom, we find an estimated comparative leg higher up to the early part of the next decade. Fittingly, this would roughly match the duration of the previous commodity boom that extended for ~20 years along the mirrored trough of the long-term yield cycle in the early 1930’s and 1950’s.”

CRB Commodity Super Cycle(Disclaimer: Past performance is not necessarily indicative of future results)
Chart Courtesy: Market Anthropology

Now, it’s easy to gather from all of the charts and talk about rates continuing to be lower that this is all a way of saying that low rates will spur inflation and re-fuel the commodity super-cycle Jim Rogers style. But in fact this is a much more nuanced conversation than that. Mr. Swarts’ main point, from what we can gather, hinges on this one line:

“For gold to reach $700/ounce or oil $50/barrel, real yields would be pushed significantly higher.”

We have to admit that took us a second to understand, and in fact we went looking for some explanation. Why would real yields be pushed higher for Gold and Oil to go down… Doesn’t it seem higher yields = inflation = higher commodity prices??  Enter Pimco, with a great description of the link between Gold prices and real yields.

….when real yields on other assets are high, investors would likely want a bigger discount to the long-run estimated real value of [a store of value, constant long term purchasing power] asset. Conversely, when real yields are low, the opportunity cost of owning the [store of value, constant long term purchasing power] asset drops and investors would likely be willing to pay a higher price relative to the asset’s long-run estimated real value… As gold increasingly becomes a financial asset, when real yields rise, gold prices should fall if they are to maintain a given level of financial demand relative to investors’ other opportunities. Similarly, when real yields fall, we expect the price of gold to rise. “

A little technical, but the basic idea is that the more people view Gold… and its cousin Black Gold (Oil), as a long term asset which will hold its purchasing power in real terms, the more that assets nominal price will move in relation to the level of real yields. And that relationship will be an inverse one, with prices down as yields go up, and vice versa. Indeed, this is why – in part – Gold and Oil have sold off so violently over the past 12 months (especially the past month), as investors are assuming a rise in real yields.

We’re by no means Gold bugs trying to make a call on where Gold will go from here. And this analysis misses the fact that there is more to ‘commodities’ than just Gold and Oil. There’s things like Coffee, Corn, and more which aren’t really considered to hold their purchasing power (although we’re sure people would much rather have Coffee in an apocalypse than Gold); but this is definitely something to noodle over…

 

Attain Funds – November Performance

We launched a family of alternative investment funds earlier this year, and each month, we share its performance numbers and match them against its liquid alt counterparts (see below). To get the full platform report emailed monthly with commentary on how each fund made/lost money, full track records, and all the relevant stats – register here.

FundMonthYTDAnn DD
Attain Global Macro Fund+7.27%+10.84%-6.03%
Attain Trend Following Fund+6.81%+21.87% -5.74%
Attain Short Term Alpha Fund+3.74%+7.08% -14.07%
Attain Relative Value Fund-0.63%+0.25%-6.46%
Liquid Alternative Comparisons
AQR Managed Futures Strategy I Mutual Fund (AQMIX)+7.64%+6.42%-6.42%
361 Managed Futures Strategy A Mutual Fund (AMFQX)+0.44%+4.88%-2.56%
Morningstar Managed Futures Mutual Fund Category^+3.35%+7.00%

^ = Morningstar Managed Futures Mutual Fund Category performance through December 5th.
Annual DD = The worst drawdown experienced by the strategy for the calendar year.

Disclaimer:  The return numbers herein include estimates of the full month performance for the previous month, and include assumptions for accrued fees, the effect of additions and redemptions, and other factors which may cause the final numbers compiled by the fund administrator to differ slightly.

Please refer to each fund’s disclosure documents for more information. Past performance is not necessarily indicative of future results. Futures trading is complex and presents the risk of substantial losses. As such, it may not be suitable for all investors. There is no guarantee that any investment product will achieve its objectives, generate profits or avoid losses.

Weekend Reads — A Swimming Owl, a High Schooler Trading Penny Stocks, and The Email Monster

Jobs Report – Economy:

A weaker world economy does not hurt, and may help, America – (The Economist)

November’s Jobs Report Crushed It – (Five Thirty Eight)

Interactive – U.S Economy – (Associated Press)

Commodities:

Shuttered Brevan Commodities Fund Caught Out on Derivatives – (Wall Street Journal)

Farmers Foil Investors That Bet on Corn, Soybean Price Drop – (Wall Street Journal)

50 YEARS OF LIVE CATTLE – (Open Markets)

Awards:

Attain on short list for “Best Introducing Broker” “Cap Intro” and “CTA Platform” CTA Intelligence Awards – (CTA Intelligence)

Randoms:

Don’t try this: meet the high schooler who made $300K trading penny stocks under his desk – (The Verge)

Here are Wall Street’s six worst trades of 2014 – (Quartz)

Friday links: chips off the table – (Abnormal Returns)

Hundreds of Police Killings Are Uncounted in Federal Stats – (Wall Street Journal)

Just for Fun:

Email Monster – (The Oatmeal)

Watch Nick Offerman Sing a Beautiful Tribute to His One True Love, Whiskey – (TIME)

Vatican finds hundreds of millions of euros ‘tucked away': cardinal – (Reuters)

VIDEO – Great Horned Owl Swims in Lake Michigan – (Youtube)