Crude Oil Wrapped Bacon (and Beef)

The first month of 2015 has been anything but dull in the futures markets. Many point to Crude’s Unbelievable sell off, or the Swiss Franc shooting up around 25% against the U.S. Dollar, but what we’re noticing down here on the front lines of commodity trading is the meat markets big run up might finally be coming to an end.

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

The meat markets are some of the more interesting futures markets to discuss, because there are so many factors outside of the usual stuff covered on CNBC that can affect prices. One example of why the cattle market is oversold via cattlenetwork.

“While most agree that cattle futures are oversold, the futures weakness creates a sharp contrast to high feedlot breakevens, which will continue rising for another month or two.  Feedlots are facing negative margins with cash prices lower than breakevens and even weaker Live Cattle futures contributing to moderate feeder cattle demand at this time.”

Meanwhile, there was debate over whether a recent policy “Country-of-Origin-Labeling” or COOL  handed down by the U.S.D.A. is what halted demand for higher priced meat products. The explanation via Farm Futures.

“COOL did not cause the declines in livestock exports to the United States, which largely coincided with a substantial global economic downturn that sapped demand for more expensive meat products,” notes the study, authored by C. Robert Taylor, Ph.D., an Auburn University Professor. The study, released by the U.S. Cattlemen’s Association, builds on an ongoing dispute between the U.S. and Canada and Mexico regarding COOL. The two countries say it violates World Trade Organization regulations.

Whatever is happening in the feedlots and international trade agreements – it’s hard to ignore that a big part of what’s going on is strength in the US Dollar. Meats, like Oil and nearly every other commodity, are priced in US Dollars.  That means, all else being equal – a rise in the Dollar would mean a decline in beef prices to keep equilibrium. This doesn’t make sense to non economists, and those in the US, who don’t usually think of the dollars in their pocket appreciating or depreciating. But it’s there nonetheless… with a strengthened dollar buying more meat, oil, and other goods than it did a year ago.

An interesting end note… Live Cattle is coming off of its highs in a more volatile way than normal. Since it’s high in December, Live Cattle is down -13.00% {Past performance is not necessarily indicative of future results}, and has experienced 3 limit down moves since the start of the year, (4 since December). Imagine what that percentage could be without limit moves?

While trend followers enjoyed the move up in 2014, and have been slowly recognizing this move down… this market is really the purview of Specialty Traders and Ag Traders. Download our complimentary Ag Traders Whitepaper and Specialty Traders Whitepaper, to learn more about how these traders use their experience in the field (literally, in a field with boots on) to ascertain what all the different data points mean for specific markets.

10 of the Best Managed Futures Programs of 2014

Best of 2014We’ve been talking about Managed Futures 2014 performance a bit in this space… after it took 2nd place in the 2014 Asset Class Scoreboard (beating out the ever so popular U.S. Stock asset class).

But managed futures investors typically don’t invest in the asset class, they invest in managed futures programs (and funds). They invest in real managers doing real trades with real money. Which brings us to… the top such managers (by returns only) last year. Now, some of these yearly numbers will make you look twice, they sure did for us.  And we will make sure to say that one year’s performance doesn’t make a track record. It’s just as important, if not more so, to look at risk metrics like the all time maximum drawdown we list below, and to see how the program does year over year on a risk adjusted basis. But, these are some impressive yearly numbers, so we’ll give some credit where credit is due.

(Disclaimer: past performance is not necessarily indicative of future results. Programs listed consist of those with at least a 3 year track record tracked by Attain Capital Management for investment by clients via managed accounts and do not represent all available programs in the managed futures universe.  The Max DD represents the worst drawdown of all time for the listed programs).

Top 10 CTA's of 20142014 RORMax DDMin. Invst.
Purple Valley Capital - Diversified Trend88.58%-49.34%1,000,000
Dreiss Research Corp. (QEP)85.89%-51.44%1,000,000
Mulvaney Capital -- Global Markets (QEP)67.37%-45.02%10,000,000

Silicon Valley Quantitative -- UQP Small65.80%-41.61%200,000
Tactical Investment -- Instl. Comm. (QEP)50.06%-41.51%10,000,000
Somers Brothers Capital -- Diversified Futures49.49%-33.56%800,000
Schindler Capital -- Daily Advantage 48.98%-41.49%100,000
KeyQuantSAS -- Key Trends (QEP)46.19%-19.15%10,000,000
Southwest Mngd -- Global Diversified 44.94%-32.79%200,000
Ancile Capital -- Global Markets42.75%-16.18%1,000,000

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

P.S. — If we didn’t have that 3yr track record min requirement, this program’s +200% annual return would’ve been at the top.

P.P.S. — While December seems all but a memory, we would be remiss if we didn’t mention the the top 10 list for the month gone by, as we’ve done all year. Here’s December’s winners:

Top 10 CTA's of DecemberDec. RORMax DDMin. Invst.
Futures Trade AG - Swing Trading14.60%-29.15%250,000
Westphal Trading -- Trend Following10.00%-26.10%500,000
Tactical Investment -- Instl. Comm. (QEP)9.92%-41.51%10,000,000
Mulvaney Capital -- Global Markets (QEP)9.05%-45.02%10,000,000
QMS Capital -- Global Macro (QEP)8.73%-11.27%25,000,000
Mark J. Walsh & Company - Standard 8.65%-43.04%2,000,000
Hyman Beck & Company -- Global (QEP)8.50%-33.24%1,000,000
Vail Trading -- Mosaic 8.40%-20.98%4,000,000
Silicon Valley Quantitative -- UQP Small 8.06%-41.61%200,000
MN Xenon -- Managed Futures 2X (QEP)7.56%-35.04%2,000,000

(Disclaimer: Past performance is not necessarily indicative of future results)
Image Courtesy: CFA Institute

A History Lesson in the VIX and Volatility

Happy Martin Luther King Jr. Day! It’s an important time to remember one of our nation’s great American heros, what he advocated for, and his accomplishments.

On an unrelated note, this three day weekend is a painful reminder in the investment space… after a huge volatility spike… which was what some say was the beginnings of what later became the financial crisis if 2008-2009 {Past performance is not necessarily indicative of future results}. Last year, we covered this six year anniversary, and we feel it’s important to revisit each year. Here’s “A Different Kind of History Lesson (The VIX).”

[Read more…]

The Swiss (Franc) isn’t all that Neutral

While the East Coast was just waking up from a long nights slumber and the West Coast was still dreaming of Oscar nominations, the supposedly neutral Swiss detonated the biggest bomb the financial markets have seen in quite some time. A surprise attack of sorts as they decided to depeg the Swiss Franc from the Euro, which it has been attached to since September 2011, with little to no warning given. For any traders or managers out there with Swiss exposure, this is a morning they’ll remember for the rest of their careers…

The Swiss Franc spiked by almost 30% against the Euro, and around 25.40% against the US Dollar index in just hours, moving from under 1.00 to over 1.22 between 4 AM and 5 AM EST.  

Here’s the Swiss Franc against the USD in 5 minute intervals.

[Read more…]

Alternative Links: Record Volume and Performance

“CTAs are computer driven hedge funds, also known as managed futures funds, that use algorithms designed to take advantage of trends in global markets.”

Commodity Trading Advisors (CTAs) End Three-Year Losing Streak – (The Wall Street Journal)

How To Educate Your Clients on Managed Futures – (Top Traders Unplugged)

Managed futures as an anti-fragile strategy – (Lakewood View)

Managed Futures Performance:

Managed Futures Funds See Outflows Despite Strong ’14 Returns – (FIN Alternatives)

Investor sentiment slow to shift in favour of macro & managed futures, says eVestment – (HedgeWeek)

ISAM, Managed Futures Dominate HSBC Rankings for 2014 – (Value Walk)

Commodity crush fuels managed futures returns – (Financial Post)

Managed Futures Post Best Yearly Performance since 2008 – (Attain Alternatives Blog)

Attain Funds 2014 Performance – (Attain Alternatives Blog)

Record Trading Volume:

CME Group Sees Record Volumes in 2014 – (CME  Group)

CME Infographic

CME Graphic

2014 Commodity Exposure: Futures vs ETFs

Throughout the year, we track a simple strategy of buying the 12 month out Futures contract against the commodity ETFs that supposedly track those very same futures, to see just how the performance lines up; knowing that ETFs typically are the ones that underperform because of the contract roll. For more on how this looks long term, see our recent deeper look into the $USO Oil ETF.

But regardless of whether you’re tracking correctly – the concept of buying and holding commodities, whether it be via futures, or via ETFs via futures – isn’t proving to be all that great anyway, with an average performance of -7%, compared to the ETFs -11% (and -12% and -16% if don’t include Coffee). It was one of the worst years ever for long only commodities, with the $DBC commodity ETF falling -28% {Past performance is not necessarily indicative of future results}.

We’re biased, of course; but we think the better way to have commodity exposure in your portfolio is a “Long/Short” Commodity Strategy; which profits from the rise or fall in prices. We’re talking about Managed Futures, which as a whole, had one of its best years since 2008. {Past performance is not necessarily indicative of future results}.

Commodity ETF Over/Under Performance 2014

CommodityFuturesETFDifference
Crude Oil$CL_F
-35.67%
$USO
-42.36%
-6.69%
Brent Oil$NBZ_F
-41.25%
$BNO
-48.20%
-6.95%
Natural Gas$NG_F
-22.44%
$UNG
-28.61%
-6.17%
Cocoa$CC_F
7.44%
$NIB
6.09%
-1.35%
Coffee$KC_F
40.65%
$JO
40.46%
-0.19%
Corn$ZC_F
-15.70%
$CORN
-12.88%
2.81%
Cotton$CT_F
-12.20%
$BAL
-22.59%
-0.39%
Live Cattle$LE_F
25.25%
$CATL
17.49%
-6.76%
Lean Hogs$LH_F
8.38%
$HOGS
-5.02%
-13.40%
Sugar$SB_F
-18.00%
$CANE
-16.21%
1.79%
Soybeans$ZS_F
-9.75%
$SOYB
-9.15%
0.61%
Wheat$ZW_F
-8.63%
$WEAT
-13.65%
-5.02%
Average-7.74%-11.22%-3.48%
Average without Coffee-12.14%-15.92%-3.77%
Commodity Index $DBC-28.07%
Long/Short Ag Trader CTAs3.17%

(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)

2014 – Best/Worst Performing Asset Classes

What “sport” has 1000’s of teams, no rules, gets played night and day across the world with a scoreboard updated minute by minute, day by day, year by year, and decade by decade? It’s none other than the “game” of investing, where a new year is a great time to see where different assets finished in relation to each other.

Now, we’ve said before that comparing different asset class performances is like comparing apples and oranges, so we won’t make too much of Managed Futures coming in “second place” But, hey, if you can’t trumpet managed futures good year on a managed futures blog, where can you do it? We’re just happy Managed Futures proved that they have unique return drivers, and can perform when stocks are moving up or down. (For more on how and why managed futures performed the way they did, see our 2014 Managed Futures Strategy Review).

Elsewhere, world stocks slid in December, to be the only other asset class finishing in the negative on the year other than commodities… talk about a tough year for diversified portfolios.

P.S – If you’re looking at commodities and wondering if we looked at the data incorrectly, the answer is no… commodities did end down -14.32% in December alone, down -32% on the year.

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

Asset Class Scoreboard Chart

(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)