Asset Class Scoreboard (where’d that stock loss go?)

The month’s Asset Class Scoreboard numbers is a perfect example of just how much noise is out there in the markets. If you were glued to your twitter feed in October, you may have been freaking out about the -5% drop, but someone who checks in monthly doesn’t even see it… October finished just fine for them after a somewhat rare stock market bounce.

And then there’s managed futures, which somehow amidst all the ‘trend following is dead’ commentary and articles about Paul Tudor Jones losing money – posted its third consecutive month of gains, and 6th out of the past 7 months, to find itself sitting in third place on our YTD scoreboard.  Of course, this is an index, not all managed futures programs are up. But just the same, it sure is nice to be around the upper tier for a while after spending most of the past few years towards the bottom.

PS – take a look at the buy and hold commodities trade, down double digits on the year as Crude Oil joined the commodity sell off in October, to join grains and metals which had done so in the month’s prior.

Table of Asset Class ScoreboardChart 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)

Pursuing Portfolio Perfection

It’s 5 years into the one of the biggest stock market bull runs of all time, and all looks fine for the aging bull even after this brief downturn in October.  For many, this has been a great run and they’ve been doing quite well during it. For many others, it’s been rather annoying, as their “smart” choice of diversification has under performed recently.

But here’s the deal – it’s not about beating the S&P 500. You’re on the quest to find a portfolio that best matches your needs before retirement. For some, that’s so far in the future, you’re not worrying about volatility. For some, it’s within reach, and you want to protect what you have before something bad happens. For some, you’re looking for something in between the two. So what’s your “Perfect Portfolio?” It’s not an easy question to answer, and many pros have tried (check out Meb Faber’s impressive list of asset allocation strategies and stats here). The basic portfolios to consider in our mind are the following:

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Commodities Volatility in One Table

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. The BarclayHedge Ag Traders CTA Index is killing it {past performance is not necessarily indicative of future results}. Many ag programs have a combination of long meats and short grain exposure. Both have been good trends thus far in 2014. (See Trade commodities instead of “invest” in  them?)
  2. Grains continue their massive down trend.
  3. 75% of the commodities in this table are experiencing double digit moves on the year.

(Performance as of 9/30/14)

Commodity ETF Over/Under Performance 2014

Commodity
Futures
ETF
Difference
Crude Oil$CL_F
-2.64%
$USO
-2.52%
0.12%
Brent Oil$NBZ_F
-10.35%
$BNO
-13.76%
-3.41%
Natural Gas$NG_F
-2.83%
$UNG
6.86%
9.69%
Cocoa$CC_F
21.68%
$NIB
21.93%
0.25%
Coffee$KC_F
60.99%
$JO
69.31%
8.32%
Corn$ZC_F
-28.80%
$CORN
-25.51%
3.29%
Cotton$CT_F
-21.75%
$BAL
-23.12%
-1.37%
Live Cattle$LE_F
24.01%
$CATL
18.86%
-5.15%
Lean Hogs$LH_F
18.90%
$HOGS
10.96%
-7.94%
Sugar$SB_F
-9.21%
$CANE
-6.94%
2.27%
Soybeans$ZS_F
-19.54%
$SOYB
-16.25%
3.29%
Wheat$ZW_F
-25.43%
$WEAT
-25.97%
-0.53%
Average0.42%1.15%0.74%
Commodity Index $DBC-9.47%
Long/Short Ag Trader CTAs17.64%

(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

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
Disclaimer

Asset Class IndexManaged Futures = Newedge CTA Index

Invest like a Billionaire?

When someone first starts investing, there is the sort of high that comes with it; a high that convinces you that you just might be the next Warren Buffet. Sure. You watched a couple investing tips videos on Youtube, and you think you found some ETFs (with extremely low or no fees) that no one else knows about.

The thing is, that feeling never really goes away. The overly active investors are confident that with a little hard work they too will eventually become Warren Buffet. We all know the likelihood of that, so instead the people at Direxion decided to take that idea and turn it into an ETF. What are we talking about? The newly launched ETF Direxion iBillionaire (IBLN). Now you can feel like you’re trading with the greats, without actually doing it. Here is the description:

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Bloomberg Vomits Alternatives

We couldn’t resist this Bloomberg headline the other day:  “Classic Cars, Lean Hogs and Duchamp Art Lead Alternative Investment Ranking”  Cars, Hogs, and art… and an alternative investment ranking – this was going to be interesting.

Except the ranking is little more than the trailing 36 month returns – without mention of the volatility, drawdowns, or any other risk to the investments.  And the so called “Alternatives” in the article seems to be an odd mish mash of returns for whole investment categories like Private Equity with its 100s of Billions of Dollars invested alongside the returns for single stamps from 1867 which gos for around $400.

Throw in a few Ferraris, REIT indices, some Bordeaux wine, Soybean Meal futures, and Hedge Funds; and it’s like Bloomberg vomited alternatives all over the page.

Conventional_1

Conventional_2

Exotic_1(Disclaimer: Past performance is not necessarily indicative of future results)
Tables Courtesy: Bloomberg

Now we get it, looking at exotic property or ideas is a lot more fun to read about then say risk adjusted ratios (what real alternatives folk geek out over), but to compare investing in wine and fast cars to Private Equity and Hedge Funds seems a bit off the mark to us. For one, there is perhaps $1 Billion worth of capacity in some of the ‘exotic’ investments put up on the page, while some of the hedge funds listed manage many billions.  It’s not quite fair to compare the return on a $400 stamp or $1,000 bottle of wine with the Trillions invested in the hedge fund and private equity space. One is attainable to a handful of people in the world, the other to millions. It’s sort of like comparing the Yankees win/loss record for the year with Phil “The Power” Taylor’s darts record.

Oh well… the tables are pretty and it’s fun to see how much some of those ‘exotics’ returned. Who knew?  Self storage REITs were the place to be. We’ll take the ‘under’ on that happening over the next three years.

As for their line about alternative investment (now they’re talking the whole world of them…) underperforming the S&P – that is another case of apples and oranges, although not for the reasons outlined above, with both return streams available to the masses.  Alternatives are oranges to stocks apples because “Hedge Funds Don’t Care if They’re Underperforming the S&P.”

A Big List of Alternative Investment Folks on Twitter

Looks like this is sort of a thing now… saying here’s a list of 10, 50, 106 “must follows” on twitter, just as we’ve seen with Business Insider’s “106 Finance People You Have to Follow on Twitter”, BrightScope’s “25 Most Socially Influential Advisors”, and so forth.

twitter-logo (1)But there doesn’t seem to be a list we could find of alternative investment folks, and specifically those focused on commodities, managed futures, and global macro strategies. The more we dug into why that is… the more we found a big hole where all of the people in the alternative investment space should be… There just aren’t that many of the 1000s of commodity trading advisors out there sharing their views on twitter.

 

Come on guys… it’s 2014!!  Time to join the party and show the world just how smart, funny, sarcastic, and charismatic us futures folk can be.  Twitter isn’t about telling the world what you had for lunch like we all feared back in 2010. It’s the modern day business card. It’s a 24/7 virtual conference where you’re simultaneously talking with hundreds if not thousands of people – it’s the new frontier where wit wins! So go on over and sign up and start making us smarter… or at least making us laugh.

In the meantime, 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:

  1. @AttainCapital – of course… it’s our list!

Managers

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