Would You Invest in this “Hedge Fund?”

It sure hasn’t been easy to be a hedge fund lately (ignoring the yachts and private jets and what not). Hedge Funds only made 9.73% last year while stocks made 32.31%, and managed futures, 2008’s all star, has struggled since, with many managed futures programs flat to down over the past five years. There aren’t a lot of investors excited about investing in something which hasn’t made any real money the past five years…

Which leads us to the simple question of whether you would find the track record of the following “hedge fund” appetizing?  Would it warrant an investment from you? What’s your first gut instinct on it?  Most likely a pass…

Hedge Fund 80-84_1
New Picture(Disclaimer: Past performance is not necessarily indicative of future results)
Data Courtesy: Yahoo Finance

Now, it’s the day after Apple earnings, when all anyone can talk about is Apple, Apple, Apple, 24/7. And for good reason, their numbers are astoundingly big (although they pale in comparison to how much bigger the biggest hedge funds are versus the average one) , so we couldn’t help but have a little Apple fun ourselves by seeing what their “track record” would look like if presented in the standard hedge fund format. That’s right, that ‘hedge fund’ performance above is none other than Apple’s stock price performance over its first four years of existence (it IPO’d in 1980).

The stock price is only up 1,874% since then…

Which leads us back to the old conversation about getting in at the highs and out at the lows. How many investors do you think got out at some point in those first five years, saying the environment was wrong for the company, it’s underperformned x, y, or z asset class, and thousands of other reasons.  More than a few, to be sure. And which investors stayed in?  Those who had a long term view. Those who believed more in the vision of the man at the helm (Steve Jobs) than the stock performance. Those who believed in the strategy of not being mass market.

What investments are out there right now sitting at a similar spot? There’s surely some unloved stocks which might fit the bill (although those seem harder and harder to find of late), and there’s more than a few alternative investments. Commodities anyone? Managed futures… your global macro hedge fund?  There’s more than a few individual investments, and a whole asset class (managed futures) which have had nothing the past five years.  Where’s the Steve Jobs equivalent of those underperformers? Where’s the innovation and research focus that you believe will be a long term success?  There’s an Apple out there somewhere – go find it!

Is the Bear Market just Hibernating?

We’re happy to see our friends at J. Lyons Fund Management getting more involved in social media with a blog, twitter handle, and now an emailed newsletter. Here’s some great stats from their latest piece hinting that the bear might not be dead… just hibernating:

NumbersStats Courtesy: J. Lyons Fund Management


The Dark Side of the Moon Asset Class Scoreboard

It’s a new year and new returns for our asset class scoreboard, where the investment classes returns are put to the test to see how they do from the beginning to the end of each year. It seems as though the “Bulls” in the final 2013 scoreboard, have warped into the dogs of January, and vice versa.

Updated Asset Class Scoreboard(Disclaimer: past performance is not necessarily indicative of future results)
(Disclaimer: For source data look at chart below)

Maybe it’s just the die-hard Pink Floyd fans that we are, but we can’t help but think that January’s chart looks a little bit like the Dark Side of the Moon cover…

Dark Side of the MoonJanuary Asset Class Scoreboard(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 Tracker ETF (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)

There’s something about the Dark Side of the Moon album cover that resonates with us as finance nerds… as strange as it sounds. You see, just as the prism releases its rainbow colors (investments) into existence…  those colors (investments) are on a never ending trajectory.  Lights never have a stopping point, and neither do investments (unless of course they shut down). For the sake of this chart, it’s as if there’s a new color prism at the start of each year. Each investment class gets a clean slate no matter if posting a +30% or -7% returns the year prior. The phrase “past performance is not necessarily indicative of future results” couldn’t be more appropriate. 

The problem is it doesn’t work that way.  Investors are very aware that Stocks posted a +30% return in 2013, despite its most recent monthly negative performance; just like investors are aware of Managed futures recent struggle, despite the fact that past performance is in fact not necessarily indicative of future results. But it’s not uncommon for one years Bulls to quickly turn into the Dogs of the next. Stocks and World Stocks went from the top two investments, to the bottom two, with Bonds showing the first sign of life in quite some time {past performance is not necessarily indicative of future results}. You’re probably thinking, that’s the whole point of asset allocation, right (sarcasm)? Pick the best or worst performers of the year prior )even more sarcasm)? That’s why the finance community emphasizes so much attention on yearly returns right? Not Quite.

This is a very near sided view. It’s about where the light (investment) was 20-30 years ago, and where it will be 20-30 years from now.  Filing down returns to just 12 months can greatly modify how well an asset class is really performing. Adjusting an asset classes yearly returns by just a couple of days could greatly alter where these investments would finish on the scoreboard. Imagine how it would look if you alter it by 6 months?

P.S. — We’ve heard some people question why Managed Futures isn’t showing crisis period performance with Stocks experiencing volatility. The simple answer is negative correlation does not equal non-correlation, and we provide a deeper explanation here.

Managed Futures Industry Ditches Polar Vortex for MFA

Every January – a who’s who of the managed futures space shows up down in Miami for the back to back MFA and Alphametrix Context conferences. We can’t imagine why they would decide to gather in Miami during January… but the continued Polar Vortex blasts likely has something to do with it.


Some members of the Attain team attended MFA’s “Network 2014” Conference, affectionately called simply = “MFA” by those in the industry; and we had the opportunity to catch up with longtime friends of Attain as well as some new faces as part of our ongoing commitment to research in the CTA space. We can’t possibly relay all that was seen and heard, but here’s a short list of managers we caught up with, and what they are up to recently:

2100 Xenon Group LLC – If you’re looking for a long/short fixed income program and way to play the rise in interest rates that surely must come one day (right?) – they are the list.  Over the past few difficult years for CTAs, their risk management process has really proved itself in minimizing their downside risk.  Currently nominated by CTA Intelligence as a candidate for “Best Financials Strategy” in 2013.

Acorn Global Investments Inc., — While the name is new, the person who founded the company is familiar to many in the industry, Jason Russell.  The Canadian investment firm was originally founded in 2004 under its previous name J. Russell Capital Management. Acorn systematically identifies (pattern recognition) and attempts to capture repeatable price movements in highly liquid markets 24 hours/day in currencies, metals, agriculture, energies, equities and bonds. While Acorn is not currently available in managed account format, it was nice to hear about his program.

Altis Global Futures Portfolio  – We’ve always liked Stephen Hedgecock and Natasha Reeve-Gray, two of the partners of Altis, and their commitment to ongoing research.  Their newest project is a beta replication strategy called the Altis Momentum Program, which targets 10% volatility and aims to provide a high correlation to trend following indices -  while charging no incentive fee.

Auctos Capital Management – Kevin Jamali has been a friend of Attain for many years, and as a fellow Chicagoan, we’ve been able to closely monitor his strategy through live trading accounts and on-site visits.  His multi-strategy system was able to avoid some of the losses suffered by some trend following programs from quick reversals in market trends in 2013 and he finished the year slightly positive.

Briarwood Capital Management – We have several accounts with briarwood and were happy to see them mostly (the 2nd half of the year could have been better) navigate the challenges that faced many trend followers in 2013.  They finished the year down by less than 1%, and this was one of only two losing years in their 12 year history (following an impressive 2012 performance of 10.53%).

Blue Diamond Non-Directional Fund – This is another program not currently available in the managed account format, but as part of our effort to stay up to date on interesting programs, we were happy to learn about this interesting program out of Switzerland which spread trades the VIX through a purely systematic strategy.  We will keep an eye on them to see if they ever decide to open up their program as a CTA.

Camomille LLP – They are not available in managed account but we will keep an eye on them.  Their strategy is systematic, which trades equities and energies and seeks to profit on market corrections/recoveries.

Covenant Capital Management– Attain Portfolio Advisors’ Trend Following Fund is managed by Covenant, so we know them inside/out – well enough to know they aren’t fazed by a small losing year, and that their longer term model (longer than most) will be back in phase soon.  The covenant/attain trend fund celebrates the anniversary of its 10 year track record this month.  While past performance is not necessarily indicative of future results, but we  hope to see the next ten years bring a similar total return (380%+).

- Desgraves – We heard quite a bit of buzz about this group out of Melbourne Australia, so we were very happy to have the opportunity to hear  first hand about their short term systematic strategy that they launched in December of 2012.  The strategy is always flat at the end of the day and they allocate less than 50% to financial futures. They finished 2013 up 11.48% and we’ll be keeping a close eye on them moving forward {past performance is not necessarily indicative of future results}.

Dominion Capital Management  – This is another short term strategy that Attain has come to know well over the years; Dominion’s Sapphire Program finished 2013 up 19.25% in one of the industry’s great comeback stories {past performance is not necessarily indicative of future results}. Faced with a 2 year stretch of drawdown between 2010 and 2012, they kept at the research and made adjustments to the program which bore fruit, proving it isn’t just about the model you have, it’s also about the models you can create moving forward.

Emil van Essen – It’s been a difficult period for Emil and the spread trading methods they utilize, but their passion for producing results remains unfazed as they continue to research improvements to their strategy. If you are a value based investor – getting in on the EVE program at these levels might look appealing… they are due for a comeback much like Dominion saw last year.

Mesirow Financial Commodities Management  – The news out of Tom Willis and Mesirow is the roll out of a new strategy that they will offer in addition to their discretionary program – to also be managed by Tom Willis.  The new program is a systematic intra-day short term fixed income focused strategy, which may see some exciting times ahead given the current interest rate environment.

Sunrise Capital Partners – While sunrise is certainly no newcomer to the CTA space, they have revamped their management team and launched a new program called the Sunrise Evolution Strategy, which finished 2013 up 21.72%{past performance is not necessarily indicative of future results}. Not too shabby!  The best part, managed accounts are available at the $500k level.

Vallen Advisors – Vallen Advisors has a short term systematic trading strategy designed by Robert Vallen, an industry veteran with deep CTA/trading and risk management experience with tenures at firms including Citicorp, GMAC, Blackstone alternative asset management, and FORT to name a few.  The strategy is research driven, utilizing parameter stress tests, analytics using daily price and volume data, and trend and counter trend elements.

 Want to talk more about any of these managers? Give us a call to go over our full due diligence notes and/or off the record thoughts and comments.


A Different Kind of History Lesson (the VIX)

Happy Martin Luther King Jr. day to you all. It’s a great day to remember one of our nation’s heroes, but for many in the alternative investment space – this three day “market” weekend (stock and bond markets are closed today) brings back memories of a nasty little volatility spike back in 2008. Now, we all think back on 2008 and the huge volatility surrounding the financial crisis and Lehman bankruptcy and what not that fall (Aug. through Nov.)… but the first big warning shot across the bow was actually on MLK weekend (Jan 20th, 2008). The calls and emails started coming in on Sunday night – as the US stock index futures started opening up 4% to 5% lower based on Asian markets having sold off around 5%. A little trip in  the wayback machine brings us this from Barry Ritholtz’s early blogging efforts:

Holy Snikes! Dow Jones Industrial Average futures contract are off 520 points at 11,586; Nasdaq futures were at 1773.25, down 76.25. Standard & Poor’s 500 futures recently were at 1265, down 60.3. Let me hasten to remind you that this is “contained.” Imagine how much worse it would be like if it were not.

It was a move completely out of left field, even though the VIX had been moving up steadily since 2007 and some recession warnings had been starting to surface. Hardest hit were the option selling managers – who take in the insurance premiums against just this sort of thing happening – then are forced to pay out when it does happen. One rather painful example was Ascendant Asset Advisor’s Strategic 1 options program, which up until that fateful night could seemingly do no wrong (reminding us of the famed option turkey).

AscendantSource: Ascendant Options (Disclaimer: Past performance is not necessarily indicative of future results) So here we are 6 years later (has it really been 6 years!! wow, time flies), and the complacency in the market is starting to look a lot like it did back then – with option selling managers again leading the top performing lists and seemingly unable to do any wrong. Will this down trend in volatility, and particularly the VIX – continue? Or are we likely to start getting texts and emails and Ritholtz “look out below” warnings one Sunday night soon.  If you’re a betting man or woman – well there’s an investment for you to place just that bet on whether a spike is coming – they are option selling managers, and they’ve been right a lot more than they’ve been wrong over the past two years… but can it continue. Stay tuned…

Vix 2007-Present(Disclaimer: Past performance is not necessarily indicative of future results) Source: Yahoo Finance For those of you not technically in the alternatives world via managed accounts, but instead doing more staid investments (heavy sarcasm) in things like the inverse volatility ETN – XIV,  your equity curve is starting to look a whole lot like the fattened up turkey before his fateful day. Although – maybe it will add another 337% over the next two years, and the two after that, and so on. It only takes 10 years at that rate to turn $10,000 into $16 million – or $1 million into $16 Billion.  Of course – the market could see some volatility like it did six years ago, or even like it did in 2011 – where your $10k could be worth $1,600, or even $160.

XIV ETN(Disclaimer: Past performance is not necessarily indicative of future results) Source: Yahoo Finance

Is The World Ready To Trade Futures On Their Mobile Phones?

iBroker_1Ready or not – mobile futures trading (and stock, and options, and baseball cards) has been going on for years now; with firms like E*Trade famously making it appear so easy to trade stocks on your iPad a baby could do it (in their crib) –  but the first attempts at it (and even a lot of the current offerings) have been rather clunky and not very easy to use.

Enter a new futures trading app called iBroker, which is easily the best trading app we’ve seen in terms of ease of use and functionality. See the app in action via the website here:  www.iBroker.com. [In full disclosure - Attain is involved with iBroker, doing the distribution for it in the U.S.].

iBroker has been live in Europe and through a single US Broker for years – but is ready for the big time in the US as of today – with the iBroker app now connected to the popular desktop platform CQG.  Meaning… any CQG user at any participating FCM can now access their balances, positions, orders, and place trades via their existing CQG login. Cool!

But our brains immediately jump to the next question…



Are we ready for professional managers to be trading client accounts via their mobile devices?”

To tell you the truth, whether you’re excited for the tech advancement or worried by it, the move to mobile devices and unplugged trading seems pretty inevitable – just look at PC versus tablet shipments.  But will we start to see professional commodity trading advisors using their mobile devices to place their program’s trades on behalf of the client accounts they’re managing?  Will the guy on the train across from you or waiting for a flight next to you be entering 100′s of contracts for the millions he has under management. The overnight trading desks these CTA’s pay a few bucks per trade to execute orders sure don’t want that, and as a client, I’m not sure I want a manager rolling over in the middle of the night and slinging some DAX futures around for my account.

But who knows – maybe this becomes more common place, if nothing else, you could see such professionals using the app for checking quotes and getting fill notifications and essentially staying on top of the markets while at the kid’s soccer game or trying to raise money at a conference.  As Russell Crowe quips in his role as Captain Jack Aubrey in the Master & Commander Film: What a fascinating modern time we live in.



It’s Final: 2013 Asset Class Scoreboard

Not that anyone didn’t already know – but U.S. Stocks did really, really well last year, leading the race for top asset class basically wire to wire on the way to +30% returns for the S&P 500 to lead our 2013 Asset Class Scoreboard… read ‘em and weep below:

Revised 2013 Asset Class Scoreboard(Disclaimer: Past performance is not necessarily indicative of future results)

Revised Chart Asset Class Scoreboard(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= DJCS Broad Hedge Fund Index;
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 =US Stocks = SPDR S&P 500 ETF (SPY)

Managed Futures secured its spot in 5th place, holding its head above the breakeven point, while Bonds and Commodities were all lower on the year (note, we use the iShares Real Estate ETF for that asset class, which tracks the stock prices of real estate companies, which was down – while average US home prices were showing up according to the Associated Press).  Also, how often do you see stocks and bonds about 34% apart?!

As for managed futures – sneaking above the breakeven mark was a moral victory – and not bad when held alongside other diversifiers such as bonds and commodities; but they need to shine in 2014 (like more than 10% shine…) to get some respect back.  We’ll be looking at just what conditions are needed in our coming newsletter – 2014 Managed Futures Outlook – so make sure to sign up to receive our newsletter if you haven’t already.