150 Asset Class Returns in One Chart

We love these new looking charts that keep popping up (the latest was over here on Ritholtz) showing how the different asset classes go from the top to the bottom, to the middle, and so forth depending on the year… implying if not outright saying that it’s a fool’s game to try to pick which one will be best… just diversify into them all.. (which is what the AA gray box represents)

But we have two issues with these charts.

  1. They don’t include managed futures…. An easy fix.
  2. They do a good job of showing how the different assets can be the best or worst performer in different periods – but they don’t really give a good view of how good or bad they were in those periods.

For us, a more telling graphic would show each ‘block’ in a ranking above and below the ‘zero line’ (in dark red), so you could more easily see when certain asset classes lose money in a year. In addition, comparing the volatility of a few different assets would be nice, showing how far they move year to year…

Here’s our amended graphic… with a Managed Futures & Emerging Market line included to show its consistency of performance over the past 15 years. What else does this chart tell you?

(Click here to enlarge)

Asset Class Compare 15 YearsData Courtesy: Novel Investor

Asset Class IndexManaged Futures = Newedge CTA Index

Commodity Exposure Breakdown YTD

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. Impressed by that UNG outperformance? check these stats
  2. The averages of the ETFs and Futures all are within a percentage of each other.
  3. Ag CTA’s (Active long short agriculture trading) are posting a 8.99% return, beating out the Commodity Index DBC. (See Trade commodities instead of “invest” in  them?)

(Performance as of 8/31/2014)

Commodity ETF Over/Under Performance 2014

Crude Oil$CL_F
Brent Oil$NBZ_F
Natural Gas$NG_F

Live Cattle$LE_F
Lean Hogs$LH_F
Commodity Index $DBC-2.42%
Long/Short Ag Trader CTAs8.99%

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

Weekend Reads

As music sales fall, sax player Kenny G turns to stockpicking – (Reuters)

The Long and Short of Long/Short Strategies – (Attain Alternatives Blog)

CBOE looks to shed some regulatory duties – (Crains)

Are you prepared to make an exit from the stock market? – (Investment News)

Cambria Raising a Crowdfund Round – (Meb Faber)

Just for Fun:

‘Dancing’ Bear Invades Golf Course, Puts on Adorable Show – (NBC News)


Teen Just Wants This Photo of Him and His Cat in the Yearbook – (Gawker)

The Long and Short of Long/Short Strategies

One of the lasting effects of the 2008 market crisis may turn out to be the flood of assets into long/short equity strategies, which promise to give the upside of the stock market without the nasty downturns (although they don’t always deliver on that promise). What do we mean by a flood of assets…. Long/Short Equity strategies account for 35% of all alternative mutual fund assets, having brought in $35 Billion in inflows over the past 2 years. While Long/Short Equity Hedge Funds recorded their 17th consecutive month of positive net asset flows recently; with net capital allocations at US$46.9 billion year-to-date. Total assets in long/short equities hedge funds stand at $708.7 billion, close to their December 2007 historical high of $756 billion, as investors and advisors perhaps wake up to the fact that buy and hold can be quite painful at times, and a more sophisticated strategy which attempts to lessen that downside makes sense.

Fast forward to the present, and we’re seeing that same strategy of deploying a more sophisticated approach boil over from equities into commodities, which have been decidedly out of sync with the ‘commodity super cycle’ promoted by Jim Rogers and others back in 2005 to 2007.  People are sick of seeing their commodity exposure do little to nothing, and exploring the idea of using a long/short approach in commodities – just as the nearly $750 Billion in long/short equity strategies are doing on the stock side.

But what is long/short commodities? For that matter, what is a long/short equity strategy.  We caught up with Tom Rollinger of Red Rock Capital, who happens to run a Long Short Commodity Strategy, for some answers, and he had the following insight:

There are some big differences in Long/Short Equity and Long/Short Commodity strategies. Long/short equity attempts to dampen volatility and “hedge” positions via (usually, but not always) offsetting positions in similar instruments (other stocks), while Long/Short Commodity strategies also have long and short positions in different instruments, but their long and short positions on at the same time is a result of market action, not a pre-determined strategy design. In addition, any offsetting commodity instruments are usually a lot less related and a lot less likely to move in tandem. Imagine being long IBM ($IBM) and short Dollar General ($DG) in a long/short equity strategy, versus long Coffee ($KC_F) and short Cotton ($CT_F) in a long/short Commodity strategy. While still two quite different companies, the former are much more related than the latter – which share almost no similarities besides being priced in US Dollars.

Equity Long/Short

Long/short equity is the oldest and most prevalent alternative investment strategy.  Since Alfred Winslow Jones established the first hedge fund back in 1949, equity long/short strategies have proliferated within both hedge fund and separate account structures and have more recently gained popularity with registered vehicles like mutual funds and exchange-traded funds. While there are notable differences between the various structures, these funds take both long and short positions in equities (individual stocks, options, or ETFs) with the intention of damping downside risk.

Typically, equity long/short investing involves going long (buying) equities that are expected to increase in value and selling short equities that are expected to decrease in value. Oftentimes the investing decisions are based on “bottom-up” fundamental analysis of the individual companies but there may also be “top-down” analysis of the risks and opportunities offered by industries, sectors, countries, and the macroeconomic situation.  An equity long/short manager typically attempts to reduce volatility by either diversifying or hedging positions across individual regions, industries, sectors and market capitalization bands and hedging against un-diversifiable risk such as market-risk.  In addition to being required of the portfolio as a whole, neutrality may in addition be required for individual regions, industries, sectors, and market capitalization bands.

[Another “long/short” approach often lumped into long/short equity category is “130/30”or short-extension strategies. These strategies start with a full portfolio of long stocks ($100 for example), take on leverage ($30 for example) to purchase additional long stocks, and simultaneously short the same amount of stocks ($30 in this example), for a total net equity exposure of 100%. ($100+$30-$30=$100.) The amount of leverage and short extension may vary (for example, 120/20 or 110/10). Because these 130/30 strategies maintain 100% net equity exposure, usually to a traditional benchmark, they exhibit correlation and beta characteristics similar to traditional investments.] 

Because most long-short strategies maintain some degree of equity exposure, their performance relies more heavily on the stock market environment than other alternative strategies. Although some hedge fund managers can switch between long and short exposure, most long/short equity hedge funds and mutual funds tracked tend to stay net long. As a result of this net positive equity exposure, long/short equity strategies generally remain highly correlated with equities.In general, good environments for long/short stock-picking strategies are ones in which stock markets are trending up but with significant dispersion among stocks, within and across sectors and geographies.

Commodity Long/Short

Unlike equity long/short strategies which aim to hedge positions in an attempt to dampen volatility, the predominant Commodity Long/Short index, the Morningstar Long/Short Commodity Index, employs a momentum-based, directional outright position methodology to generate alpha with no attempt to hedge.  Morningstar was accurate in observing that, due to the fundamental mechanics of how futures markets actually operate, “long-only” commodity indexes are at least somewhat flawed in design and a suboptimal choice for investors’ capital.

This is because hedgers, who utilize the commodity futures markets as a means to transfer price risk to speculators or investors, could be ‘producers’ or ‘consumers’ of vari­ous commodities and, depending on which one they are, could benefit from the price of that commodity either rising or falling. This means that while the net supply of commodity futures contracts may be a “zero sum”, there is more to the story, since one group of par­ticipants (hedgers) is regularly willing to pay a premium (i.e. initiate and hold losing posi­tions) to limit their risk.  Producers of commodities are able to hedge their price risk by taking short positions in futures contracts on the commodity that they produce. Conversely, consumers can hedge their risks by buying long positions in the futures contracts on the commodities that they consume.

Morningstar created a set of single-commodity index­es to serve as constituents for the Long/Short index by calculating a “linked” price series that incorporates both price changes and roll yield. The weight of each individual commodity index in the Long/Short index is the product of two factors: magnitude and the direction of the momentum signal. They initially set the magnitude based on a 12-month average of the dollar-weighted open interest of the commodity. They then cap the top magnitude at 10% and redistribute any overage to the magnitudes for the remaining commodities. The direction depends in part on the type of composite index and in part on the type of commodity in the Long/Short index.

In the Morningstar Long/Short Commodity Index each month, if the linked price exceeds its 12-month daily moving average, the index takes a long position in the subsequent month. Conversely, if the linked price is below its 12-month moving average, the index takes the short side. An exception is made for commod­ities in the energy sector. If the signal for a commodity in the energy sector is short, the weight of that commodity is moved into cash; that is, the index takes a flat position.

This is a simplistic long/short commodity model, similar to the traditional systematic trend following type models which bracket markets and enter long or short when prices break above or below 1 or 2 standard deviations of recent price activity. So, in many ways, traditional trend following/managed futures type strategies are doing some long/short commodity type trading already.

However, due to their size, the majority of the largest and most popular systematic trend-based CTAs only offer 25% exposure or so to commodities with the rest of their trading occurring in financial futures such as currencies, fixed income, and stock indices.  Part of the motivation behind the ‘long/short commodity’ naming convention is that the newer wave of tactical commodity program managers and indexes want to make sure that they are noticed for their 100% exposure to commodities.

Our own strategy, the Red Rock Capital Commodity Long-Short Program, utilizes proprietary measures and combinations of volatility and price discovery in an attempt to capture directional alpha while trading 29 commodity futures markets either long or short.  Originally we referred to the program as the “Commodity Long/Short” program,  but for reasons outlined above – felt some people were confusing it to be too similar to an “Equity Long/Short” strategy in design – which it is not.

[Sources:  Morningstar Long-Short Equity Handbook: and Putting Momentum into Commodities:]

P.S. – Check out Red Rock’s whitepaper on Long Short Commodity strategies for more information.


Asset Class Scoreboard YTD

Everyone down, now everyone back up (except you commodities…). Seems like everything has been moving in tandem of late, with everything reversing their July losses for gains in August. Except commodities, which remain the lone asset class down on the year. And meanwhile, managed futures has been hanging in there pretty well given how poor of an environment it’s been with the ultra-low volatility. {past performance is not necessarily indicative of future results}.

Asset Class ScoreboardChart Asset Class


(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)

The Top 37 Posts Ranked by Readers this Summer

This week is a significant week for many: the end of summer, the end of vacation, beginning of a new school year, the start of the NFL season (Go Bears!), and a possible move in the markets. But between all your summer plans, you might have elected to turn off those phones, tablets, fancy gadgets, and in turn were unable to read some of Attain’s best posts over the past couple of months.

So instead of making you search for them all (or even worse, not read them) we decided to list the most read blog posts that were written this summer (May to Present). Enjoy.


1. “CNBC didn’t screw up their Interview with Winton’s David Harding

CNBC makes a second attempt at interviewing Winton’s David Harding and this time around they managed to ask questions actually dealing with the Managed Futures industry. Here are our takeaways from the interview.

2. “A Big List of Alternative Investment Folks on Twitter

Here’s our compilation of people and firms currently out there on twitter (in no particular order, despite the numbering)  providing the latest insight, humor, debate, and news on investments – especially the alternative kind.

3. “And Now… Some Words from Winton’s David Harding

Winton’s David Harding made it all the way across the pond to Chicago to accept the Pinnacle Achievement Award. Before this post, we’ve never captured his thoughts and insights directly. Here are the questions and answers we asked Harding directly about the industry.

4. “Lessons Learned From 37 Years of Futures Trading 

Sometimes you need to dig up some of your old posts, because it proves just as relevant today, as it did back then. That’s the case for this post we dug up from March 2011. The post is written by former Attain employee Barbara Mueller, who last most than 37 years of futures trading experience.

5. “Rise of Robo-Advisors?”

What are Robo Advisors? Why the sudden attention from the financial media? Some believe they threaten to shift the way the financial advisor business model works. More importantly, what would this mean for alternative investments?

6. “Do We Still need to do this? A Trend Following Rebuttal

We’ve been known to help straighten out some wayward journalists from time to time, and our friend Michael Covel pointed out just such a journalist in need of some help. Noah Smith of Bloomberg View wrote a not so accurate depiction of trend following and we felt the need to provide some educational material on the matter. Here’s our thoughts.

7. “Attain’s Semi-Annual CTA Ranking

Completed in July of 2014, our Semi-Annual CTA Rankings have been released in pursuit of answering the most frequently asked question, “What’s the BEST managed futures program?”  Who’s the best is a tricky question? Do you mean: Best last year? Best for all time? Best risk adjusted return? Best in terms of lowest drawdowns? Overall, there are 8 separate categories, from best programs with risk adjusted performance, best reward managers, as well as best on our Attain Focus list.

8. “Here it is, the Big Sell Off… has been Wrong the past 169 Times

The Dow Jones dropping 300 points in a single day at the end of July seemed like the beginning of the end of the Bull Run,  or at least that’s what people thought. But every dip like this over the past five years has been little more than that – a dip. That got us wondering… what’s the average return of the S&P for the following 1, 30, and 90 days after falling -1 percent or more?

9. “Can you Time the Market Without Crying?”

It doesn’t make much sense to talk about missing the 10, or 20, or 40 best single days in the stock market. Most market timers aren’t trying to avoid a single bad day, and get back in the next day. It makes much more sense to us to talk about what missing the best streaks of days looks like. The best 10 and 30 days periods, for instance.

10. “The Climate of Volatility, Investing, and Science

Barry Ritholtz’s came out with a piece suggesting we shouldn’t think about the increase of weather extremes as global warming, or even climate change. He’s believes we should think about it as a dramatic increase in the global climate’s volatility, what he calls Global Weather Volatility. So how do you bet on Global Weather Volatility?

11. “No Grain. No Gain.

The grain markets were in one beauty of a down trend this summer. The reason these moves are attracting so much attention is because they’re both technical and fundamental. Meaning, both systematic and discretionary managed futures programs were participating.

12. “Even Bad Diversification Works

This summer, Business Insider released “The Most Important Charts in the World,” and we were presently surprised to see a chart entitled “Diversification Works.” The only problem is the chart uses foreign stocks as their diversification to U.S. stocks, which isn’t all that diversified. So we replaced the foreign stocks allocation of the portfolio with Managed Futures. Would diversification have “worked” then?

13. “Alternative Investments: Why Do we Care?

Our CEO Jeff Malec was invited to present at a “Lunch & Learn” put on by Advocate Asset Management, and their partners Aegea Capital this summer. Thing is, he wasn’t a huge fan of his spiel, having one of those ‘a ha’ moments on the walk back to the office where you think, I should have approached it this way.  Here’s Jeff’s revised speech, getting into why we’re all worried about this alternative investment stuff in the first place.

14. “Attain Launches Family of Alternative Fund (AttainFunds.com)

If you haven’t checked out our new website in conjunction with the launch of our new family of alternative investment funds, here’s another. The new family of Attain Funds contains five single manager funds across different alternative investment strategies: Trend Following, Short Term Trading, Relative Value, Agriculture, and Global Macro; while containing several “platform” features such as the ability to switch between funds and transparency through the daily reporting of positions.

15. “Mama Said Knock You Out

For those of you who weren’t rocking to LL Cool J in 1995, his ‘comeback’ song famously begins with the line, “Don’t Call it a Comeback.” Well, we bet the Emil Van Essen managed futures shop here in Chicago, may have been humming that first line (if not the entire song) throughout the month of July. You see, Van Essen managed to post estimated returns of 6.00% in July, their best month since May of 2011 {past performance is not necessarily indicative of future results}.

16Get Ready to be Long Crude Oil

Remember to the beginning of July when ISIS began its invasion into multiple Iraqi cities? This sent talking pundits for a Long Crude call, and well, that didn’t really happen {past performance isn’t necessarily indicative of future results}. But while all that noise was taking place, the technicians, or quants as they preferred to be called these days, weren’t  looking at the news, they’re looking at the technical’s, and seeing the following:

17. “Natural Gas ETFs – Heads You Lose, Tails You Lose More

We’re not sure if this is a commentary on the volatility of Natural Gas, on the dangers of turning futures markets into ‘safe looking’ ETFs, or on the age old problem of investors getting in exactly at the wrong point… but it sure is a weird set of circumstances when investors buying the long ETF are down about the same amount since inception as those buying the short ETF {past performance is not necessarily indicative of future results}.

18. “Forget the Fed should we be worrying about Japan?

We just wrote the post coming from a long Labor day Weekend and it has got quite a bit of attention. If the Federal Reserve isn’t going to be the catalyst for interest rates finally moving higher, maybe it will be another player??  That’s the question floating around after the Bank of Japan made an inconsistent choice to remove an artificial demand for 10yr JGB.

19. “Trade Commodities or Invest in Them?

Ben Carlson has been nailing it lately over in Tumblr-ville on the new Yahoo Finance Contributor network. His most recent article “Are Commodities for Trading or Investing?” was right up our alley. The piece echos what we’ve said before, that commodity ‘investing’ doesn’t look so great when it is a “long-only“ approach.

20. “Managed Futures Asset Flows = Thanks Bridgewater

We were skeptically optimistic when we looked at the asset flow report from Barclayhedge in June, which showed the best inflows for managed futures in  8 months, gaining $1.2 billion. But just how much of it is thanks to Bridgewater?

21. “The Folly of Prediction (World Cup Style)

We’re big World Cup fans in the Attain office, and we enjoy the U.S.’s run all the way up to their lose to Belgium. Being data and stats folks, you think we would have been into the “odds of winning” stats being thrown about by Bloomberg and Five Thirty Eight? Why do we care?  Because there’s a whole lot of prediction nonsense in the financial markets that is almost continuously wrong:

22. “Bloomberg Vomits Alternatives

We couldn’t resist a Bloomberg headline the other week, which essentially equates standard alternative investments with “exotic” investments such as investing in classic cars like Ferraris. Do Stamps, Wine, and Ferrari’s count as Alternatives?

23. “Alternative Links: Is this what Every Commodity Trader Looks Like?

Besides the Alternative Links that were making headlines that week, we just so happened to come across some interesting Commodity Trading art, and of course we featured it.

24. “How I missed 1,300% in $GOOG”

It’s the 10 year anniversary of one of the most successful IPO’s of all time. How stupid were most of us not to get in on the Google train? Why talk about it now? Why beat ourselves up about it now? Because if we can’t learn from missed opportunities, we’re doomed to miss them again and again.

25. “Who needs the USDA when you can live tweet Crop Conditions

What gets Ag folks excited on Twitter? Live Tweeting crop conditions. Last Month, the people of the “2014 Pro Farmer Midwest Crop Tour,” were tweeting their hearts out with the hashtag #PFtour14 to show the conditions of corn and soybeans across the Midwestern states. This crop tour is unique in that they don’t want to focus on yield numbers specifically, but the big picture.

26. “Does the iPhone come in John Deere Green?

If you had to guess how many farmers had a smarthphone in the U.S. what would be your answer? What if we took it one step further and asked how many farmers use their smartphone to access grains and livestock pricing on the CME Group website.

27. Invest Like a Billionaire?

“What would you say if someone told you, you could invest like the Warren Buffet’s of the world? Direxion has taken this idea and launched the Billionaire ETF (IBLN) which tracks companies selected from portfolios of asset managers with a personal net worth of at least 1 Billion. But there are a couple holes in this idea.”

28. “Complacency Everywhere

There’s no doubt that 2014 has been the year of little to no volatility…. In stocks. Here’s the thing that’s driving those who do more than just stocks — CRAZY. It isn’t just the stock market that’s seeing record low volatility. Complacency is everywhere. It’s for sure in stocks, but it’s also in countless other markets.

29. “Why Hedge funds don’t Care if They’re Underperforming the S&P 500

The problem with saying hedge funds are underperforming the S&P 500 is that the grand majority of them aren’t even trying to beat the S&P 500 in returns, for any set period. They are trying to deliver better risk adjusted returns than the stock market, but that doesn’t make for as good of a headline.

30.A Global Macro take on Crude, FOMC, and Everything in Between

In case you missed it, we took to the airwaves with BTFDtv to talk everything from Corn plantings to interest rate levels with Mr. Roland Austrup, manager of the Attain Global Macro fund. We knew Roland would be a great guest as he has a great TV face, and loves to talk markets. Did he Ever.

31. “Low Volatility not so Smart?

Risk is bad, right? Volatility is the enemy of the efficient portfolio?  All else being equal, the intelligent investor would prefer less ups and downs in their investments… right?

32. “About that Volatility = Complacency Claim

Does low volatility in the markets other than the VIX truly mean that investors are complacent? The theory is if investors think equities are going lower, it will be accompanied by increased volatility, and therefore the price of the VIX will move higher. But does this same logic work in the Bonds market or in Currencies? We think no…

33. “Would You Like some Volatility with that Pulled Pork

Despite news of the hog virus hitting 14 months after the market took notice, the volatility in the market in 2014 continued especially this summer, with 5 more limit moves (4 up, 1 down), bringing the 2014 total to 7; putting the Hog market at the most limit moves experienced in the last 6 years.

34. “The Secret Club That Runs the World

Wow, the editor really got carried away with that title. We picked up a copy of Kate Kelly’s (great name) book ‘The Secret Club That Runs the World – Inside the Fraternity of Commodity Traders’ the other day, and after finishing it off – think the title probably should have been something more like:  A few traders who took enormously large risks, made fortunes, lost fortunes, and then faded into relative obscurity. But that might not have sold so well.

35. “Getting Out of the Game

For those who’ve been too busy looking at the fines, guilty pleas, and general misdeeds at the big banks over the last year – you may not have realized their getting out of the commodities trading game, en masse. But why?

36. “Be Cautious on Counting Correlations

This has always been a favorite discussion. Correlation does not equal causation. The site Spurious Correlations really puts it into perspective.

37. “About those Higher Interest Rates

Raise your hand if you’ve been waiting, and waiting, and waiting for interest rates to finally rise. 2014 was surely the year the move lower (rates higher) was supposedly going to gain steam, except nobody remembered to tell the bond market what it was supposed to do.

Alternative Links: A Mixed Batch


Hedge Fund Industry Waits for Managed Futures to Recover (Subscription Required) – (Efinancial News)

Managed futures August Performance — (Attain Alternatives Blog)

Hedge Funds:

Hedge fund industry snapshot: $2.6 trillion in 11,000 funds – (CNBC)

Liquid Alts:

Flows to Liquid Alternatives Strengthen in July – (Daily Alts)

Vanguard urges caution on liquid alts – (Investment News)

Is your ‘alternative’ fund a ticking time bomb? – (Market Watch)


GFI Group Shareholder Sues to Block CME Group Acquisition – (Bloomberg)

CME Group Announces the Launch of Illinois Basin Physically Delivered Coal Futures – (Market Watch)

Futures & Miscellaneous:

Big Crops Drive Futures To New Contract Lows – (Farm Futures)