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)

The 2014 Commy Awards

There’s the Emmy Awards, the Webby’s, the ESPY’s, (why do they all end in y’s), but no commodity awards as far as we know… Let’s see if we can’t do something about that, with the first (and perhaps last) edition of the Commy Awards:

(All Charts Courtesy: Finviz)

The ‘you probably didn’t benefit one bit from this’ market of the year = Coffee

In February, the coffee market shot up and never looked back, up around 48% on the year. However, unless you play with coffee ETF $JO, or are invested in a smaller niche managed futures manager – there’s no way you caught this move. It’s a shame too, because it was one heck of a move, and it all happened in first 2 months.

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

The Most likely to get your Houston Neighbor’s Grand Piano repossessed = Crude Oil

No one saw the crude implosion coming. Well maybe not nobody… but crude dropping almost  50% in 4 months was something trend followers sure enjoyed, even while the Russian government (and Ruble) did not. At 8.9 million barrels per day produced in US – that’s $411.7 million not there anymore… that’s a lot of pianos.

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

The most popular, for no apparent reason = Gold

No matter how much the gold market moves, it’s the commodity market people love to write about, and people love to read about. Even though it finished the year basically unchanged, down -0.4% – there were reams and reams of digital ink written about its demise, its comeback, its luster, and its non-performance? And all for what? So that they can say they were wrong last time, and might be right this next time?  Honorable mention goes to the rest of the metals crowd, which actually fell quite a bit more than Gold.

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

The S&P..who?  Award = Cattle

The S&P 500 wasn’t the the only market hitting new all time highs throughout 2014, so was Cattle. The problem? Not too many noticed or wrote about it, and it doesn’t count if it was an article about higher beef prices at the grocery store.

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

The Market most likely to make you look like an Idiot (Again) = US Bonds

Earning its 5th straight award in this category is the Bond market. 2014 was supposed to be the year for higher Interest Rates and Lower Bond prices, except it wasn’t. The US Bond Aggregate Index ETF ($AGG)  ended the year up 5.50% for the yr and rates dropped from  3.9 to 2.7, while everyone and their sister thought higher rates in store in ‘14 Bonds. You think yields will continue to drop or has it finally reached its lowest point? Are you willing to say it will go the other way? How about asking the people that made the same decision last year.

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

The Most (un)Likely to Succeed / Best Closer = US Dollar

It had its best quarter in 4 years, while other currencies fell flat. But it wasn’t just what it did, it was how it did it – closing fast. For the first six months, the USD didn’t move, while the last 6 months resulted with an up move of 13%.

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

The Most Likely Cause of your Acid Reflux = Corn

It’s hard to trade a market that has three consistent trend reversals in one year. From January to May it was up about 20%, then fell around 36% over the next 5 months, and rebounded 24% to close out the year. You must have a strong stomach to dabble in this market (honorable mention = Nat Gas)

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

The Jennifer Aniston = U.S. Stock Indices

This year saw US stocks pile onto the already outstanding run the stock market has been on over the past 5 years, so while the stock market run may be getting a bit older… it’s still looking good, just like Jennifer Aniston.

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

This Year’s Santa Claus Rally

It’s the most wonderful time of year for those heavily weighted in the stock index ETFs… At least if you’re a believer of the famous “Santa Claus Rally,” which simply means that in the past, December has been historically kind to stock market returns. You know how we feel about past performance… it is not indicative to future results.

Santa Claus Rally

But we can’t deny if said past performance has been good for stocks. We talked about the Santa Claus Rally last year, and there is a lot of debate of whether the Santa Claus rally is a myth, or if there is some basis in fact.

Here’s this year’s observation from Stock Trader’s Almanac:

“According to the 2015 Stock Trader’s Almanac, since 1969 the Santa Claus rally has yielded positive returns in 34 of the past 44 holiday seasons—the last five trading days of the year and the first two trading days after New Year’s. The average cumulative return over these days is 1.6%, and returns are positive in each of the nine days of the rally, on average. Nevertheless, each year there is at least one day of declines.

Alternative research over a longer period confirms the persistence of these trends: According to historical data going back to 1896, the Dow Jones Industrial Average has gained an average of 1.7% during this seven-day trading period, rising 77% of the time.”

No one can really pinpoint the cause of such a rally, but this year’s run can be attributed to better than expected economic growth, via NBC news:

“The wind in the stock market’s sails lately has been the pledge by the Federal Reserve last week to be cautious about raising borrowing costs amid signs that the economy is picking up steam. Investors got another signal of the economy’s emerging strength on Tuesday when the government revised upward its final estimate of third quarter economic growth to the fastest pace in 11 years — 5.0 percent from 3.9 percent reported last month.”

Just today, stocks reached new all time highs off of this news but it hasn’t been slow small gains. Just days ago (5 trading days), the Dow Jones Industrial Average was down -4.3% on the month, and is now past 18,000. By our estimation, historically, there’s only been a 17% chance that the index finishes the month positive after a down move like that, let alone only 5 days {past performance is not necessarily indicative of future results).

But it hasn’t just been this rebound, or the last rebound. It’s that it only took the DJIA six months to go from 17,000 to 18,000. Before that, it only took seven months to go from 16,000 to 17,000 {past performance is not necessarily indicative of future results}. Will it take six months to reach 19,000? A year from now, will it be at 20,000? We’ll let others do the speculating.  Enjoy the ride while it lasts, and happy holidays.

P.S – Stocks aren’t the only thing at new all time highs. Managed Futures hit new all time highs in November {Past performance is not necessarily indicative of future results}.

6 Takeaways from the Performance of 8 Asset Classes YTD

Our takeaways:

[Read more…]

10 of the Worst ETFs Money Can Buy

It’s typically a slow week in the financial world for the few days leading up to our collective feasts on Thanksgiving day, and that gives us a little down time to catch up on matters we typically don’t get to day to day, or even week to week.

One of those things is checking in on ETFs some people thought were a smart idea at the time, and now doesn’t look so good. Without Further ado, the Top 10 worst performing ETFs over the past twelve months:

ETFTicker1 Year %
VelocityShares 3x Inverse Natural Gas ETN$DGAZ-82.10%
C-Tracks Citi Volatility Index TR ETN$CVOL-80.31%
Direxion Daily Jr Gld Mnrs Bull 3X Shrs$JNUG-75.06%
Direxion Daily Jr Gld Mnrs Bear 3X Shrs$JDST-73.52%
VelocityShares Daily 2x VIX ST ETN$TVIX-73.05%
ProShares Trust Ultra VIX Short$UVXY-72.94%
Direxion Daily Semicondct Bear 3X Shares$SOXS-67.15%
Direxion Daily Russia Bull 3X Shares$RUSL-66.00%
Direxion Daily Nat Gas Rltd Bull 2X Shrs$GASL-60.71%
UltraShort DJ-UBS Natural Gas$KOLD-59.91%

(Disclaimer: Past performance is not necessarily indicative of future results)
Table Courtesy: ETF.com

Our Notes:

  1. We’re not surprised to see 3 of the Top 10 worst performing etfs be “tracking” Natural Gas, and again – both a bull fund and inverse fund both among the worst performers (it is truly magical their ability to pull that off). Those ETFs seem to not perform well under…let me see here, ok, under most circumstances.
  2. Gold Miners still suck. (See Here Here and here.) And now they join the dubious distinction club as being one of the plays where you lose no matter whether you thought Gold Miner’s were going up or going down. This one’s even more egregious than the Nat Gas, as they are bull and bear on the same index – yet both down more than -70% in past year.
  3. The Good old VIX. Betting on Volatility is a tricky, tricky game. Betting short on the VIX over the past 5 years probably seemed like a good bet, right up until October when the VIX spiked without notice, and all the sudden you lost half of the investment.

So how did you fare? Hopefully not as bad as some of these… Have an ETF that surprised you? Let us know.

Beef: Why there’s a Five Guys in your Town

It’s been a little over 10 months since we’ve looked at the Meat markets (Live and Feeder Cattle) hitting all time highs, and if you think that’s because the ascent has slowed down… think again.  It’s almost become S&P-like boring to talk about…. Ho hum, another all time high in Cattle today as the market has marched on and on this year. . Feeder Cattle is up 42%, while Live cattle is up 22% YTD. But it’s not just this year. The cattle markets have been in a consistent uptrend the past 4-5 years, more than doubling in price since 2010 {past performance is not necessarily indicative of future results}.

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

Here’s where we’ll throw you a curve ball – because unlike the stock market, which is discounting what is excepted to be going on over the next 12-18 months, the cattle markets are factoring in conditions from 2 to 3 years ago. Puzzle me that one, futures markets affected by the past.  For further explanation, we turn to the Texas Department of Agriculture explaining that it was the drought all the way back in 2010 that’s pushing prices higher today, via the Texas Tribune.

At this point, the biggest impact of the drought has been on beef prices,” said Bryan Black, spokesman for the Texas Department of Agriculture. “The drought that began in the fall of 2010 forced cattle raisers in Texas, Oklahoma and elsewhere to reduce the size of their herds. As a result, beef production has declined, and that has pushed prices higher…. Donnell Brown, the owner of R.A. Brown Ranch, said he has had to reduce his 1,000-cow herd by 50 percent over the last three years.”

Shrinking production(Disclaimer: past performance is not necessarily indicative of future results)
Chart Courtesy: Wall Street Journal

What’s that reduction look like in numbers, the Wall Street Journal has a graphic, showing production (not sure that’s the word the cattle getting slaughtered would use) to hit its lowest year to year change since at least 2006, down 5.3%, to 24.4 Billion pounds.

And now there’s a new factor – the high beef prices themselves… which can lead to more ranchers slaughtering the cattle they do have, to take advantage of the high prices, leading to less cattle and even higher prices. Although the flipside to that is also likely to happen. Just like money flew into the Dakotas to take advantage of high energy prices, money will fly into ranching in order to ‘produce’ more cattle and take advantage of the higher prices. Which will eventually lead to more supply… in turn pushing prices back down. It’s why commodity markets are cyclical – with those looking to profit from higher prices by growing more, drilling more, or birthing more cattle, ultimately causing the end of those high prices.

For now, we’ll just hope prices at our local hamburger joint don’t go up too high… Which come to think of it, might be another reason for high beef prices. The number of fast-casual burger spots in Chicago has increased a lot since the financial crisis, when restaurateurs decided on cheaper burger options over more expensive concepts (according to an article we read back in 2009/2010ish… that we just spent way too long trying to find… anybody got it out there?). There’s the national guys… Five Guys, SmashBurger, Epic Burger (our favorite), M Burger, and dozens of local entrants.  Now we’re getting hungry for a (more expensive) burger!

 

 

 

 

The Scary Commodities this Halloween

Halloween is here once more, and everyone around the office is gearing up: carving pumpkins, buying candy for trick or treat-ers, and last minute runs to the store for costumes. To get everyone else in the mood, we found some Halloween like similarities in the futures markets we couldn’t help but share.

Costumes:

Last year, it was the US Dollar/Euro Currency Battle Signal that got us excited for Halloween (Who doesn’t love bat man?)… and now that Bat Signal has transformed into one of the most feared villains in the galaxy… Jabba the Hutt, of course.

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

Jabba

A couple weeks ago we went in depth about the US Dollar having its best quarter in years , and how Managed Futures has historically benefited from it (past performance is not necessarily indicative of future results), but what else is out there on Halloween Eve?

Scary Vs:

We’re talking a shock to the system…. That Damned V Reversal. Here’s Why you should be Afraid of the V-Shaped Reversal

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

V for Vendetta

Chocolate:

Everyone needs their fill of snickers, Milky Way, 3 musketeers on Halloween. But where that chocolate comes from has but the market in limbo the past couple of weeks. It appears, the Cocoa market decided to get nice and scary (volatile) just in time for the ghosts and goblins to come out. That’s just your basic up move of around 12% and -13.5% fall in about a month and a half… nothing to see here, move along.

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

Sugar: Super Scary

For those that don’t like Chocolate (see here), there’s the laffy taffies, the warheads, the sour patch kids… basically… Sugar…. And lots of it. The market jumped out it’s mountain trend to start the year and has been choppy ever since.

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

We don’t expect sugar prices to go up anytime soon just because of Halloween, but recent studies show that the brain has the same reaction of cocaine as to sugar, suggesting that there might never be low demand.

Sugar Cocaine

 

That’s enough to maybe sway one of two people to be long sugar for the couple of the next couple years (or maybe short depending if the government calls for harsher restrictions).

We’ll leave that explanation to the journalists who make you really step back and think about it.  Here’s John Oliver from  Last Week Tonight doing his best to explain Sugar.  Have a happy Halloween, and don’t have too much sugar.