Weekend Reads: Is Leverage Your Friend?

Investors: Financial Leverage Is Your Friend, Seriously – (Institutional Investor)

Projected Oil Prices – (Wall Street Journal)

You’re Smart, But You Can’t Forecast – (Barry Ritholtz)

Managed Futures Diversified Portfolio vs. Traditional 60/40 Portfolio — (Attain Alternatives Blog)

Just for Fun:

At the Time Warner Center, an Enclave of Powerful Russians – (The New York Times)

‘Saturday Night Live': All 141 Cast Members Ranked – (Rolling Stone)

Ginsburg: ‘I wasn’t 100 percent sober’ at State of the Union – (Associated Press)

A Cheat Sheet For Comey’s Speech On Race And Policing – (FiveThirtyEight)

What You Don’t Know Can’t Hurt You?

We’ve been seeing more and more posts lately (perhaps it’s just our reading list) that essentially say something along the lines of – why make everything so complex in investing, just stick with the simple stuff.  The latest culprit comes from Reformed Broker, suggesting that while the traditional 60/40 portfolio surely isn’t the best portfolio, an average investor probably won’t know the difference between it and a better one – in advance – so why try. Here’s what he had to say:

“Are there better ways to invest than the classic 60/40? Sure there are. Will you be able to identify them in advance? Can you bear the added risk of a portfolio tilted toward higher expected returns, through the really rough times where that extra return is actually earned? What are the costs associated with supposed “better” investment strategies? Can they be justified on an after-tax, net of transaction expense basis?

Those questions are probably some pretty high hurdles for a lot of the so-called “better” or more exciting strategies to surmount, no?”

We’ve been through this before. First, with Business Insider looked at the past 20 years of returns. Next came, one of our favorite bloggers, Barry Ritholtz saying simple beats complex. We looked back at the past 3 cycles (every 5 years) after that read, and found that simple beating complex wasn’t as simple as it has appeared over the past few years, showing a bit of recency bias. In the latest attempt, Reformed Broker uses a chart from Research Affiliates’ Chris Brightman to show that the old standy 60/40 portfolio has an annualized rate of return of 6.5% and volatility at around 9% – putting it square in the middle of all these other more complex investments designed to beat it.

Returns past 20 years(Disclaimer: Past performance is not necessarily indicative of future results)
Chart Courtesy: Reformed Broker

Our quick thoughts on this chart:

1. It forgets the other crash.

“But now consider the fact that this period, between 2005-2014, encompasses one of the worst stock market crashes and economic downturns in history.”

What would happen if you moved the last 10 years, to the last 15 years to include the tech bubble crash? Something tells us those numbers might be a little different.

2. It Assumes Volatility is Bad.

We’ve been over how there’s more to risk than volatility (making the Sharpe ratio not so sharp). And depending on where you are in your investment journey, low volatility can actually dampen your opportunities for gains. For more on this see our “Low Volatility not so Smart.

3. Bonds = Great! Anything with 40% bonds in it has been stellar the past 5 years, as bonds have defied gravity (cue Wicked chorus). Add the ‘09 to ’14 stock market rally, and it’s no surprise the 60/40 is looking great alongside everything else. This is like saying Tom Brady is great right after he wins the SuperBowl. Saying he’s going to win it again next year is an entirely different, thing, however.

4. Commodities Suck?  We wish the entire ‘Commodities’ asset class was re-named ‘Long-Only Commodities’, because that is the thing causing terrible returns with volatility. Commodities at  -4% annualized return, and a roughly 18% volatility. That’s rough.  But Reformed Broker, haven’t we’ve bugged you enough by now to merit at least a mention of the asset class that goes both long and short commodities – managed futures.  They use commodities, but don’t look like commodities when measuring return over volatility. If you want to learn more about it check out our about Managed Futures page.

5. Speaking of Managed Futures.  If we add them to the table – here’s how that would look. And if we did a single program – our Attain Trend Following Fund would literally be off the chart… above the title. But they could counter with their own ‘off the charts’ single stock with Apple or similar, which is a fair point. So we added Managed Futures as a whole via the Newedge CTA Index.

Past 10 years with Managed Futures(Disclaimer: Past performance is not necessarily indicative of future results)
Managed Futures = Newedge CTA Index

We’ve done this before (looking at “other” efficient frontiers), but what if we look at the old 60/40 side by side with a portfolio which diversifies 30% into Alternatives (and not just any alternatives – our particular brand, managed futures. Here’s what we found.

60/40 vs. Diversified

60 40 Portfolio Breakdown(Disclaimer: Past performance is not necessarily indicative of future results)
Explanation: ROR = Rate of Return, 60/40  = 60% Stocks (S&P 500) + 40% Bonds (Barclays U.S. Aggregate Bond Index).
30% alts = 42% Stocks + 28% Bonds + 30% Newedge CTA Index
(Data From : 2005 – 2014 )

The next time there’s an article out there looking at various asset classes over the past 1, 3, 5 or whatever time period…. step back and ask yourself –  if I moved those dates ranges by a couple weeks, 6 months, 2 years, 5 years; how different would those returns be?  Josh Brown surely knows the average 60/40 investor better than most, and definitely better than us. But it seems insulting to their collective intelligence to assume that these 60/40 folks wouldn’t be willing to “jump over hurdles” to find something that might be better than what has been. They surely know that stocks are at all time highs and interest rates are at all time lows, and we can surely all agree that that game can’t last forever – even if it can last for much longer than we think it can.

Alternative Links: $17.2 Million Swindle

“The Scoular Co., an employee-owned commodities trader founded 120 years ago, has been taken for $17.2 million in an international email swindle, according to federal court documents.”

Impostors bilk Omaha’s Scoular Co. out of $17.2 million – (Omaha)

Performance:

January Hedge Fund returns by primary strategy (Managed Futures Lead) – (Pensions & Investments)

Eurekahedge: Hedge Funds Gain 1.43% In January – (FINalternatives)

3 Alternatives Investments that Deserve and Oscar (“Wild” aka Managed Futures) – (Morningstar)

Woman’s $8.2 billion firm is off to a huge start – (CNBC)

Let the Good Trends Roll – (Attain Alternatives Blog)

Attain Funds – January Performance – (Attain Alternatives Blog)

CME:

As CME closes its trading pits, what’s a seat worth? – (Crain’s Chicago)

VIDEO: Cereals Europe 2015 – (Cereal Europe)

CFTC:

Congressman Says CFTC Wastes Money – (FA Mag)

Who’s on the Scoreboard 5 minutes in

If this were a football game (American football), we would be just 5 minutes into the first quarter, making any look at the scoreboard premature to say the least. But hey, months do end, and each asset class posts its number up there on the board for all to see. For those in the red to start the year, there’s a lot of game left… don’t worry about it. And for those, like managed futures, getting out to an early lead – it’s a nice cushion to have against any down periods through the rest of the year.

Enjoy the rest of the game!

Jan 2015 Asset Class Scoreboard Table

Past 12 months Cumulative Performance(Disclaimer: past performance is not necessarily indicative of future results.)
Source: All ETF performance data from Morningstar.com
Sources: Managed Futures = Newedge CTA Index, Cash = 13 week T-Bill rate,
Bonds = Vanguard Total Bond Market ETF (BND),
Hedge Funds= IQ Hedge Multi-Strategy (QAI)
Commodities = iShares GSCI ETF (GSG);
Real Estate = iShares DJ Real Estate ETF (IYR);
World Stocks = iShares MSCI ACWI ex US Index Fund ETF (ACWX);
US Stocks = SPDR S&P 500 ETF (SPY)

 

Thank You! Attain Repeats with Best Introducing Broker Award

Thanks to all of the customers, managers, vendors, and the folks at CTA Intelligence for recognizing all of the hard work we do here, with our second straight Best Introducing Broker award. We don’t do it for awards… in fact we like to give out the awards around here (see our Top 15 managers and ‘Commy’ awards); we do it because it is challenging, because it is fun, and because we love doing it.

2014 2015 awards

We’ll say simply, Thank You. Thanks to those who have been clients going on 13 years. Thanks to those who fought with us during the PFG crisis. Thanks to the CTA’s who manage our clients’ funds with such care and diligence. Now, back to work!

P.S. —  A shout out to Covenant Capital, the manager of our Trend Fund, for one of the performance awards, and two of the firms we partner with to run our business (and is included in our “108 Resources to grow your CTA Business list,” Arthur Bell and Turnkey Trading Partners for winning service awards.

Attain Funds – January Performance

Our Family of Alternative Investment Funds started off 2015 strong, with all 4 funds posting positive gains and three of the four hitting new all time highs in the month of January. The Global Macro fund had its single best monthly return since its inception, at +9.04% and +26% since the launch of the fund less than a year ago {Past performance is not necessarily indicative of future results}. For more information of the Attain Funds, click here.

Attain_Portfolio_clear_backgroundTo 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.

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

FundJanuary2014Ann DD 2014
Attain Global Macro Fund+9.04%+13.75%-6.03%
Attain Short Term Alpha Fund+7.96%+8.73% -14.07%
Attain Relative Value Fund+2.61%-9.13%-10.37%
Attain Trend Following Fund+0.58%+24.78% -5.74%
Liquid Alternative Comparisons
AQR Managed Futures Strategy I Mutual Fund (AQMIX)+4.80%+9.63%-6.42%
361 Managed Futures Strategy A Mutual Fund (AMFQX)+3.33%+4.88%-2.56%
Managed Futures Mutual Funds+3.92%+9.24%-2.16%

Managed Futures Mutual Funds = The Morningstar Managed Futures Category Performance, showing an average of all Managed Futures mutual funds on their platform. Performance as of January 30th, 2015.

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: RIP CME Pits

New Picture

 

CME sees $10 mln savings per year from closing futures pits – (Reuters)

The End of The Pits – (Points and Figures)

CME to close most futures pits in Chicago – (Crain’s Chicago)

Alternatives:

US endowments pare bets on alternatives – (FT)

Robo-Advisors don’t like Alternatives – (Wealthfront)

Managed Futures January Performance — (Attain Alternatives Blog)

Oil:

Lifting the ban on crude-oil exports should be next – (The Economist)

7 Technical Indicators to Tell When the Crude Sell Off is Over – (Attain Alternatives Blog)

Jobs Report:

Revisions Made This A Blockbuster Jobs Report – (Five Thirty Eight)

Financial Tech:

5 things I learned by leaving Wall Street to run a startup – (Business Insider)

Just for Fun:

First stars appeared 100m years later than thought, research finds – (The Guardian)

Twitter Reaches Deal to Show Tweets in Google Search Results – (Bloomberg)

Madam President, Role Model In Chief – (Medium)

Outrage Over Government’s Animal Experiments Leads To USDA Review – (NPR)

Counties where German-Americans are the largest ethnic group – (The Economist)

Mila Kunis and Ashton Kutcher want their daughter to be the first Female NFL Coach and with the Chicago Bears – (CSN Chicago)