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.



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!


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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 Emil Van Essen, the quirky (in a good way) Canadian who runs the self named 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, his best month since May of 2011, a year the program returned 33.99%. Since that blowout year, it has been more of a struggle for Emil and his team, however; with losses of  -11.63% in 2012, -6.60% in 2013, and a weak first quarter of this year, down about -3.9% {past performance is not necessarily indicative of future results}.

Anyone falling for the trap of chasing performance likely wouldn’t be looking at Van Essen at all in 2014 given the past three years. Josh Brown at Reformed Broker just had a great piece on how fired managers actually outperform hired managers for institutional investors. But for those who like buying into drawdowns and looking for some value, Van Essen’s unique strategy is quite attractive after they put in a postive 2nd quarter followed by the impressive July numbers.  In deference to the song… it is a bit of a “comeback.”

The Van Essen strategy takes long and short positions on the futures  “curve”.  What’s a price “curve”?  Glad you asked. You see, futures markets are unique animals, quite different from their stock cousins. One unique item is that they have specific end dates and many different contracts of the same market; like Dec. ‘14 Crude Oil, Dec. ‘15 Crude Oil, and Dec. ‘16 Crude Oil and so forth. Those prices are either more expensive or cheaper than each other, creating a “curve” of prices; referred to as Backwardation and Contango depending on the shape.

Historically, crude oil has been the fund’s go to market so to speak, and the strategy profited from near term crude oil prices falling throughout the month as production levels rose domestically and abroad. But the bulk of gains in July was from trading lean hogs as near term hog prices fell much quicker than those in the back month, a classic relative value trade. Finally, coffee was another top performer as well with the further out months falling at a quicker pace. All in all it was a good month to be looking for (relative) value opportunities in commodities.

For more on the Emil Van Essen program as utilized by Attain’s Relative Value Fund, download our detailed report.

P.S — You might also enjoy the following video interview of Emil.

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

In case you missed it, the Dow was down around 300 points yesterday to bring the index into negative territory for the year (just a handful of days after hitting a new intra-day and all time closing high) – spiking the Vix 27% and no doubt bringing a bunch of worrisome headlines around the financial world today along the lines of:

Here it is… this is the big one = Marc Faber followers

Eureka! Volatility is back!  = Managed Futures & Global Macro managers

Stocknado = Josh Brown

We’ve been due for a pullback  = such and such asset management co.

Relax, it’s all in your mind = Barry Ritholtz

The easy thing to do today is write about how this shows just how scary stocks can be… We’ve surely done it before (here, and here). To talk about how and why you should be diversified (here), and to talk about this could be the start of a move lower as evidenced by a few chart patterns (divergences in the Russell and MidCap). But every time we’ve done that for the past 5 years, we’ve been wrong.

Every dip like this over the past five years has been little more than that – a dip. It hasn’t been the start of the next big bear market. It hasn’t been the crash we’ve been waiting for and the return of big volatile swings. It’s usually been one off. A quick bout of selling in the otherwise boring day after day slow grind higher, leading to those complaints about there being no volatility.

Consider the numbers since the lows in March of 2009. Since then the S&P has experienced a single day loss of -1% or more 169 times, -1.5% or more 88 times, and -2% or more 52 times (with about 45% of all of those happening in 2009 and 2010). That’s not a whole lot of days out of the 1,300+ days the market has been open, but it’s not all that  rare either. These days happen. But what concerns us more than the fact that they happen, is what typically happens after them. What’s the average return of the S&P  1 day, 30 days, and 90 days after experiencing a -1% loss or greater?  That’s the type of question we’re interested in.  Turns out – buying the close on such a day the past 5 years has been an excellent strategy.

Day After Returns(Disclaimer: Past performance is not necessarily indicative of future results)
Data = Since March 2009

The average next day performance after a big down day (loss of more than 1%) has been about three times the average daily performance (.25% versus .09%). Talk about BTFD… (look it up). We’re told as young investors to be very careful trying to catch the falling knife, but this has been more like catching a falling balloon, untying it, and watching it zoom higher.

Who knows what today, the next month, and next 90 days will bring. Is this drop a falling balloon unable to do any damage, or the proverbial falling knife which might cut your hand off? We won’t pretend to know – but we’re sick of treating every one of them like the falling knife. They won’t all be dangerous to catch… and indeed they’ve been anything but for the past five years. “This time is different” is notoriously wrong, and to say this sell off is any different from the other 160 or so we’ve seen in recent memory would be stretching it.

One of these times it will be different, and long volatility strategies such as managed futures and global macro will be waiting – but the odds here likely favor another bounce higher and new all time highs on the horizon for stocks.

PS – Mr. Market – this is an attempt at some reverse psychology. We really do want some volatility and down moves, not a return to the slow crawl higher… We’re hoping a nod to the likelihood this amounts to nothing may in fact make this time different. 


CNBC didn’t screw up their interview with Winton’s David Harding

If you haven’t noticed… Winton Capital’s CEO David Harding is taking the press by storm this summer. We’d like to think that our interview with Harding a little over a month ago was the start of it all. Or perhaps it was Harding receiving the Managed Futures Pinnacle Achievement Award. Or the simple fact that Winton is big for a hedge fund, and absolutely enormous for a managed futures manager (even though they technically don’t classify themselves as a CTA). Either way, since our interview, they’ve been featured in a Pensions & Investments article, and now… Mr. Harding’s in the one-on-one interview on CNBC found below. (Unfortunately, this isn’t CNBC’s first attempt at interviewing Harding…the first one was a train wreck).

This time around, we must say, CNBC chose the right person to interview Harding as Julia Chatterley came prepared to ask the right questions.

Here’s our takeaways:

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Even Bad Diversification Works

Last week, Business Insider unveiled the “Most Important Charts in the World.” If ever there was an outfit with a flair for the dramatic headline, that would be them…but there was one chart that caught our attention entitled, “Diversification Works.” It was from none other than Josh Brown at Ritholtz Wealth Management.

Diversification Works

(Disclaimer: Past performance is not necessarily indicative of future results)
Chart Courtesy: The Reformed Broker

Now if you asked a roomful of random investors what diversification in their portfolio meant to them, chances are all of them would have a slightly different answer. In this particular instance, Brown defines diversification as a portfolio including a 30% allocation to the S&P 500, 30% to foreign stocks, and 40% to bonds. We’ll give you the bonds, but pairing foreign stocks with US stocks doesn’t strike us as all that diversified. Foreign stocks (MSCI ex US) have a correlation of 0.89 with US stocks over the past 10 years. 

And being managed futures folks, we couldn’t help but look at their chart and wonder… what if you had managed futures in the foreign stocks slot instead? Would diversification have “worked” then?

Here’s our chart swapping the 30% foreign stocks allocation with 30% managed futures, per the Newedge CTA Index.

Diversified with Managed Futures

(Disclaimer: Past performance is not necessarily indicative of future results)
(Diversified = 40% Barclays Bond Aggregate Index, 30%  Newedge CTA Index, and 30% SPY)

While Brown was bragging of the diversified portfolio regaining its peak 14 months before a stock-only portfolio, the portfolio containing managed futures regained its peak 35 months prior, or more than twice as fast!  How? Because 30% of the portfolio was positive during the 2008 crisis as managed futures became negatively correlated to stocks during the crisis.  Now that’s some diversification.

Some may concentrate on the far right hand side of both of these charts, where the stock-only portfolio has, after 7 years, eclipsed the total return of the diversified portfolio (whether diversified in other stocks or managed futures), and discount diversification as unimportant or even costly. You would have made more money not being diversified, but that’s not the point for those who want some protection.

The point, as Josh Brown points out, is to have shorter drawdowns. The point is to be able to regain a peak sooner. The point is to be able to not panic at the bottom.  And, of course, the point (for us) is that diversification can “work” even better when you aren’t diversifying with another form of stock market investment (foreign stocks), and instead gaining true diversification with different return drivers.

P.S. – Past Performance is Not Necessarily Indicative of Future Results. The chart should probably be titled – Diversification Worked (past tense), not works (present tense). We noticed a comment summing that up rather nicely, and ask the simple question: Will Simple Beat Complex in the Next 5 Years?

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