How did Managed Futures do while the Dow was Down 1000

Now that the dust has settled somewhat after the mini crash of last Friday and Monday – we’re getting calls fast and furious asking how managed futures fared during the Dow losing a few thousand points.

Here’s how the Managed Futures indices did on Monday, and how they stand so far for August and YTD versus the S&P 500.

Managed Futures Indices August 24thSource: Newedge

But people don’t invest in indices, they invest in actual programs – which usually wait until the end of the month to report performance. Thinking that may be a little too long for many to wait in order to see how specific programs handled this volatility – we compiled some estimates of different programs we work with each day:

(Note: All performance for August 24th and MTD are estimates.)Managed Futures Managers Performance August 24thHere are how the Attain Funds are doing:

Attain_funds_chart_PEF

Past performance is not necessarily indicative of future results, but this is a real time, real life example of why investors put programs like these in their portfolios, zigging while the market works out one heck of a zag…

P.S. – Systematic trending following strategies typically rely on trends that last multiple weeks or months to capture returns, especially the ones referred to when talking about crisis period performance. If this volatility is just the beginning of a substantial move lower, we could see some big numbers as we enter fall. But If Monday was the peak for this bout of volatility, this could be quickly forgotten by trend followers.

P.P.S. – It’s worth noting that that the managed futures space has not only different categories but also different strategies within those categories. The strategies that have been experiencing good returns (like options traders) over the past couple of years have been giving back those returns rather drastically since the recent uptick in volatility.

 

What’s the Best Managed Futures Program? Our Top 15


Managed Futures Rankings August 2015
With managed futures back in the limelight some after a strong 2014, more and more investors are on the search for a program that fits their wants and needs. Which brings us to the most frequently asked question….

What’s the BEST Managed Futures Program?

There’s no easy way to answer this but we try our best with our newly released semi-annual Managed Futures Rankings highlighting the Top 15 overall programs.

Finding the right Managed Futures Program for your portfolio isn’t easy. It is trickier than it looks. Put too much emphasis on returns, and you penalize those who control risk. Too much emphasis on experience, and you penalize a potential new star. Too much reliance on the present, and you discount the past and so on.

 

We’ve dedicated extensive resources over the years to analyzing and testing a rankings system that would best reflect what we believe to be the important metrics for measuring skill in this investment space. Our rankings start by filtering the BarclayHedge database to a smaller subset of managers which have at least 36 months of track record, are registered with the NFA, offer managed accounts, and are viable business concerns (no prop trading records for example).

Overall, there are 8 separate categories, from best programs with risk-adjusted performance, best reward managers, as well as our “Programs You Should Know” list. Click here to download the report.

 

9 Things to think about before playing the Commodities Sell Off

Despite Twitter’s stock being at all-time lows (see our IPO post on that) – it’s still a great way to get the pulse on markets, as witnessed by some panic induced tweets that have been swarming around commodity markets reminding us that commodities are getting slammed, that commodities aren’t a good investment (depends on what exposure you’re getting), and that commodities = Crude Oil (not true).  But the questions remains, are commodities as a whole really taking a hit, or is it just the “big players” such as crude oil and gold that are seeing a sell off?

Behold, the current commodity carnage cliff notes:  (we averaged the cash price move for each time frame of the commodity markets seen on FinViz for each sector, and sorted by return over the last 12 months).

Commodities TableData as of 8/6/2015
Energy = WTI, Brent, Heating Oil, Gas RBOB Gas, Natural Gas, and Ethanol
Grains = Wheat, Corn, Soybeans, Soybean Oil, Canola Oil
Metals = Gold, Silver, Copper, Platinium, Palladium
Softs =  Cotton, Orange Juice, Coffee, Sugar, Cocoa, Lumber
Meats Live Cattle, Feeder Cattle, and Live Hogs

Now, there are two kinds of people in the world. Those who look at the numbers above and want to ride the momentum lower and lower; and those who see the red above and start thinking about the inevitable bounce when the sell-off subsides and these markets start to rise.  Do you Buy the Dip or Ride the Sell off Lower?

Buy the Dip?

If you’re the type of person who sees a falling knife and reach out to catch it, if you’re one of those looking to play a bounce, we’ll first point you to – How to Play a Bounce in Crude Oil.  Next, we’ll offer these (some serious, some not) options:

  1. Buy a Commodity Index ETF like $DBC, $GSG, and $DJP, or sector specific ones like $XLE, $DBB, or $GRU. But only after you get fully up to speed and understand the ins-and-outs of Contango and Backwardation.  If the market you choose to expose your portfolio to is in Contango, you’re going to be putting yourself through a roll yield cost and potentially be on the losing end even if the price is rising.  And don’t Buy the Cocoa ETF ($NIB), which is actually sitting up +9.93% YTD and near four year highs.  Not a candidate for your bounce theory.
  1. Like that idea? Then double it up with a double long Commodity ETF like $DAG. It currently is sitting just under $4 and is at all-time lows! Just beware those roll cost problems are magnified as well.
  1. Invest in a systematic managed futures program which, which is designed to participate in a meaningful bounce by bracketing the market, and entering into breakouts higher. They’ll lose money on some of those breakouts which don’t turn out to be the big rally higher, but in so doing will ensure they’ll participate in the big one which is a sustained rally higher. Learn more about those here.
  1. Buy farmland. It’s coming off of its 2013 high, but not by too much, via Marketwatch.“The average price for Iowa farmland fell nearly 9% in 2014 to $7,943 an acre, according to the Iowa State survey. Farmland data from regional Federal Reserve Banks also show a softening of prices across prime row-crop growing areas of the Midwest.”
    FarmLand
  2. Invest in a company that deals directly with commodities like $DE $AA $CAT. But what happens when the overall market is decreasing while the commodities they create their business from is also dropping? We talked about this issue with the energy markets vs. energy companies a while back, and see that the Argi-business ETF $MOO has actually increased the past three years (and past 1 year) despite the commodity sell off, telling us maybe this isn’t the bounce mechanism?  Maybe they may make more money with cheaper inputs? Maybe they trade more like stocks based on debt ratios and cash flow?MOO chart(Disclaimer: Past performance is not necessarily indicative of future results)
    Chart Courtesy: Finviz 
  3. Go on the Midwest Crop Tour and become a live tweeter. Before the days of twitter and social media, we used to have to rely on the (sometimes highly inaccurate Crop Report) from the USDA to let us know what crop conditions were like across the country. Now, just about everyone can get their hands on this information. But who needs reports when you can do it yourself? Recently, people set off around the Midwest and tweeted pictures of crops for a live update on conditions. You could certainly try your hands making your own decision on where corn or soybeans might go, but beware of the hundreds of other factors to consider such as international supply, a bad storm, etc.
  4. Invest in Monsanto ($MON) and risk the wrath of your non-GMO eating kids and California cousins. It has a patent on just about every crop seed around so as along you see corn growing (at all) more than likely it’s a byproduct of Monsanto.
  5. Enlist in a commodity focused managed futures manager like  Four Seasons Commodities Corp. or Bocken Trading.  These programs have decades of experience, not only analyzing crop data, but also digging an extra layer deep in talking to farmland insurance adjusters, talking to contacts in China, and more. If there’s a bounce coming, they could be just the ones who see the green shoots  first (literally).

Or Ride the sell off lower?

For those who think this sell off will continue (and perhaps even contaminate stocks and bonds in a global rout), that’s RCM’s specialty: systematic managed futures programs, which are designed to ride such momentum until it ends. You can see this investment represented by the Newedge CTA Index below, where the acceleration in the commodity sell off the past twelve months (which was reported as mainly oil prices, but in fact was across each commodity sector as seen above) propelled the index higher. Conversely, the pause in the down move causing a retracement/losses in the CTA index this spring.  Of course, that would require another sharp leg down in commodity prices ($30 Oil, anyone?).

Table of Newedge vs Commodity Index(Disclaimer: Past performance is not necessarily indicative of future results)

How will you choose?

 

 

 

 

It Sure Feels Worse Than It Is

 

If you look at the asset class scoreboard it sure looks like everything is fine (despite commodities), but it sure feels a lot worse than it is; with U.S. stocks near their annual lows this week, after being at their annual highs last month.

What can we say about commodities except what we’ve already said here, here, and here.

Asset Class Scoreboard Table July 2015

 

Asset Class Scoeboard Chart July 2015(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)

Alternative Links: Outside the Box

Thinking out of the box – managed futures firm risks – (Lakewood Views)

Quantifying CTA Risk Managment — (Campbell & Company)

The Biggest Making in Investing – (Valuewalk)

Multistrategy Alternative Funds Win Converts, at a Price – (Barrons)

Passing Volatility – (The Art of Trading)

Industry:

CME Group and FTSE Russell to Offer Leading Index Derivatives – (CME Group)

Energy:

Crude oil exports and the price of gasoline – (The Hill)

Germany met 78% of its daily energy needs with renewables – (QZ)

Commodities:

Poor commodities: an asset without a central bank backer: James Saft – (Reuters)

Robo-Advisors:

Betterment catches up to Wealthfront in AUM as robo competition reaches boiling point – (Investment News)

The Rise of Robo-Advisors – (Attain Alternatives Blog)