Alternative Links: The Cycle of Intrigue

“Axel Merk, president and chief investment officer of Merk Investments, says if you want alternatives to have an impact on a portfolio, you should hold 20%, and that now is the time to rebalance portfolios to hedge against volatility and rate hikes.”

Video – How do you build alternatives into an ETF portfolio? – (Investment News)

The Answer is there is not an ETF that brings true alternative exposure – (Attain Capital)

Morningstar partners with ProShares to manage an alternative ETF – (Investments News)

Alternatives: A key piece of the investment puzzle – (Investment News)

Goldman Sachs strategists say investors hold too much stocks and bonds and need to jack up alternatives allocations – (Investment News)

Performance:

CTAs extend positive performance run into September, says Newedge – (Hedgeweek)

Podcast:

Michael Covel’s Trend Following Radio interviews Roland Austrup of IMFC – (Michael Covel)

Education:

Volatility Strikes Back, Overused as a risk measure, Volatility seeks a new home in investors’ long term portfolio – (Morningstar)

NASDAQ: The Good, The Bad, and The Ugly

(click here for a larger view)
Nasdaq Infograph_6

Commodities Volatility in One Table

Here’s our monthly look at the various commodity ETFs and how they track a simple strategy of buying December futures and rolling them annually. Plus, a comparison to Ag Traders and an overall commodity index.

Some Notes:

  1. The BarclayHedge Ag Traders CTA Index is killing it {past performance is not necessarily indicative of future results}. Many ag programs have a combination of long meats and short grain exposure. Both have been good trends thus far in 2014. (See Trade commodities instead of “invest” in  them?)
  2. Grains continue their massive down trend.
  3. 75% of the commodities in this table are experiencing double digit moves on the year.

(Performance as of 9/30/14)

Commodity ETF Over/Under Performance 2014

Commodity
Futures
ETF
Difference
Crude Oil$CL_F
-2.64%
$USO
-2.52%
0.12%
Brent Oil$NBZ_F
-10.35%
$BNO
-13.76%
-3.41%
Natural Gas$NG_F
-2.83%
$UNG
6.86%
9.69%
Cocoa$CC_F
21.68%
$NIB
21.93%
0.25%
Coffee$KC_F
60.99%
$JO
69.31%
8.32%
Corn$ZC_F
-28.80%
$CORN
-25.51%
3.29%
Cotton$CT_F
-21.75%
$BAL
-23.12%
-1.37%
Live Cattle$LE_F
24.01%
$CATL
18.86%
-5.15%
Lean Hogs$LH_F
18.90%
$HOGS
10.96%
-7.94%
Sugar$SB_F
-9.21%
$CANE
-6.94%
2.27%
Soybeans$ZS_F
-19.54%
$SOYB
-16.25%
3.29%
Wheat$ZW_F
-25.43%
$WEAT
-25.97%
-0.53%
Average0.42%1.15%0.74%
Commodity Index $DBC-9.47%
Long/Short Ag Trader CTAs17.64%

(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

Weekend Reads, That was Ugly (for Stocks) Edition

Get your rest this weekend…. it’s bound to be exciting next week. Will the August lows hold in the Dow, Nasdaq, and S&P?  Can Crude Oil print a 7 handle?  Will US interest rates go negative?  Stay tuned…

In case you were sleeping: There was a big Stock Market Sell Off this week:

Did the VIX just Flash a Major Fear Signal? (Ryan Detrick)

Carl Icahn shorts S&P 500, sees stock market correction coming (Globe and Mail)

Market chop puts alternative strategies front and center – (Investments News)

Stocks, We Hope They Go to Zero – (Attain Alternatives) & The Best Images from “StockToberPocalypse” – (Attain Alternatives) & a Refresher on how your alternatives probably aren’t (Attain Alternatives)

5 Thinsg to Ponder: Through the Looking Glass (streettalk)

 

Plus some sort of related items

Fed minutes: Staff cuts growth outlook due to higher dollar – (CNBC)

Nassim Taleb: Why You Should Embrace Uncertainty – (The James Altucher Show)

ETF Scoreboard October Edition – (ETF Database)

 

It’s Not All Stocks:

Oil to drop to $75 a barrel? (CNBC)

Railroad demands are tying up Minnesota farmers – (SC Times)

Colleges’ Wider Search for Applicants Crowds Out Local Students – (Wall Street Journal)

 

And, just for Fun:

Interactive: Quarterbacks Pay vs Play – (AP)

If You Bought A Red Bull In The Last 12 Years They Owe You Money — Here’s The Easy Way To Get It – (Buzzfeed)

Did you know police can just take your stuff if they suspect it’s involved in a crime? They can! – (John Oliver)

Stocks… We Hope they Go to Zero!

One of the best things about being in an investment which can do well when markets are down is the fun you can have at cocktail parties, in the locker room at the golf club, and dinner with friends. A -334 point down day in the Dow and around -5% move off of all time highs starts to  bring out the shrugs and exasperated expressions, as those well to do’s around you murmur their version of the timeless classic:

“Tough day in the markets today, huh?”

And here’s where it gets fun… because our go-to response is usually:

“Sure was tough… we hope they go to zero.”

For those from the world of traditional investing, or better yet – those who’ve only been around the last five years – this can be a bit unsettling and cuts a lot of conversations short.

“Go to zero? What?”

While we don’t actually want market to go all the way to zero (we still want a functioning society and all of that), we welcome with open arms the volatility that would accompany some fear and panicked selling. Because, you see, we’re mostly in the business of volatility. Or to be more precise – the business of profiting off of volatility expansions from periods of consolidation and dampened volatility.

As we have laid out before, managed futures tends to do well during market crisis periods because of their ability to go short global markets. In 2008, managed futures programs found themselves short nearly every type of market not considered a safe haven, be it stock indices, energies, foreign currencies, metals, grains, or softs. Fast forward to the past few weeks, and we’ve seen several managed futures programs start to initiate such short positions in markets like US and non-US stock indices, energies, foreign currencies, grains, and metals.

Quite simply, we’re cheering the markets to zero because the lower they go in this move down, the better for our clients in their long volatility investments. Of course, past performance is not necessarily indicative of future results and there are clients and programs and positions which may lose money in an extended move lower.  But generally speaking, such down trends work to the benefit of the managed futures space in our experience.

So for now we’ll be cheering… “Go to Zero!”

Russelll To Zero(Disclaimer: Past performance is not necessarily indicative of future results)
Chart via Finviz.com

The Best Images from “StockToberPocalypse”

Part of the reason many believe social media will never die, is because of days like today. Stocks experienced their single worst day of the year. The Dow plunged 300 points (-1.97%), The S&P had it’s best day of the year yesterday, followed by it’s worst day in six months (down -1.98%), and social media exploded with posts, comments, and charts trying to explain just what was happening – as if we had just lived in a dream land where stocks only went up the past five years. Is volatility in stocks here to stay? Why did stocks gain 2% yesterday, and lose all of it the very next day? Is this another 2008? Are we all F*(^% crazy as Reformed Broker says.

First, some funny ones…

Stocks Crushed

I’m confused… Is the lighting crushing something? Is the Lightning stocks? Or is it the Tornado? Is the Tornado volatility?

 CartoonCourtesy: StockTwits

And some serious ones…

 

Man on PhonePicture Courtesy: CNBC

The obligatory serious looking trader guys… (is that guy on the right wearing a Flyers shirt… what trading floor is that?)

Dow Oct 9thChart Courtesy: Reformed Broker

Wild Market MovesChart Courtesy: CNBC

Vix ChartChart Courtesy: Ryan Detrick

Winton down in September? What %^#$

Winton Logo

We’re probably at risk of not getting that David Harding interview next time he’s in town… but we just can’t help but wonder aloud what happened with Winton in September. The estimate we’re seeing for their September performance is a negative -0.72% (and that would be their program performance, not the performance of the super high fee product you’re accessing them through).

While that’s hardly reason to sound the alarm, and Winton remains up +1.83% on the year; we’re talking the biggest player in the managed futures space being down in one of the biggest up months for managed futures in a few years (Q3 was the best quarter for managed futures since the hey days in 2008). What happened?

Well, we’re not privy to the investor letters or sector breakdown of performance just yet… (we’re not investors), but we believe it highlights an important issue for investors to consider when considering Winton. And that is the little issue with trying to access finite commodity markets with a very, very large amount of assets. Winton and Mr. Harding had $24.5 Billion under their control. And the math on that just simply makes it hard to have any meaningful exposure in markets like Lean Hogs or Corn or Palladium, where there are position limits. We covered it in this post “Can CTA’s with $1 Billion AUM Trade Grains?” and again in this newsletter “Second Guessing the Winton’s of the World.”

Harding was quoted as saying ‘don’t call us a F***ing ‘managed futures’ firm’, and he may be getting his wish if he doesn’t keep pace with those who are wanting to be known as managed futures. I’m sure he’s smarter than us and will likely get exactly what he is after in adding stock investments and other asset classes as they move away from a managed futures firm to a full on hedge fund behemoth in the Renaissance or Bridgewater mold. But for those wanting managed futures exposure – it will pay to watch just how correlated Winton will be moving forward to something like Newedge’s Trend Indicator. (it wont’ help to compare to the managed futures indices, as Winton is IN all of them… making them auto-correlate quite nicely).