Alternative Links: The Swiss Franc

Swiss Franc:

David Harding on the Swiss Franc Move – (CNBC)

The Swiss (Franc) isn’t that Neutral – (Attain Alternatives Blog)

Hedge Funds Dodge Shock Move From Swiss National Bank – (ValueWalk)

Podcast:

Michael Covel Interview with Meb Faber – (Trend Following Radio)

Trend Following:

Managed futures funds shine anew, but mystery remains – (Investment News)

10 Myths about Momentum Investing, Squashed (Momentum is not Trend Following) – (Quant Investing)

Alphametrix:

Futures regulator dogged by questions on conflicts, governance – (Crains Chicago)

Commodity Funds:

After harsh commodity fund shakeout, even the winners see tough times ahead – (Reuters)

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)

The Difference Between Then and Now

In case you missed it, we were featured in Investments News a couple months back explaining “Why Managed Futures Aren’t Getting the Job done.” It’s not just about the industry’s recent drawdown. It’s also about what kind of exposure you have, why some exposures might not be working, and what you can do to get the exposure you’re looking for.

Check it out if you have some downtime while you’re home for the holidays.

Oh, and P.S. – Managed Futures just hit new all time highs.

11 things you should know about the Crude Oil Drop

Christmas came a month early for those short Crude Oil over the past couple of months, specifically last week, and even more specifically – Friday.  Since July, WTI crude has dropped more than 30%, with 10% of that coming the day after Thanksgiving. And just about everyone and their mom (mom’s who have a blog about commodities?) have written something about the Crude Oil move.  Here’s 11 insights into what might make this drop more than just this week’s headline.

[Read more…]

Option Trading is For (Thanksgiving) Turkeys

It’s that time of year. The Christkindlmarket is open on the Daley Plaza, there’s ice skating in Millennium Park, and we’re preparing ourselves for the savoring smells and tastes of Thanksgiving dinner, where no platter of food is more important than that of the turkey. The relative that might disagree is your vegetarian cousin (Tofu turkey for you), and the guy who makes the ultimate sacrifice in the name of giving thanks…. the turkey.

Don’t feel too sorry for the turkey though… it had a great life, and died at the peak of its existence (being fed everyday), but the only issue is it had no idea, the “turkey surprise,” was coming. If fact, there’s a lovely chart of the turkey life, courtesy of Nassim Taleb’s wonderful book The Black Swan. Taleb’s depicts “the good life” of a turkey, including round the clock care, all the food it can muster, developing a life of self-satisfaction, just so us humans can prepare the unfortunate creature for the not so pleasant surprise ending.

The Turkey Surprise

 

Now we’re not trying to lend advice on your eating habits, but can’t help but use this example in the investment realm. While it seems impossible to imagine this chart could be a stock market index tomorrow, next week, or next month – this chart is to remind those caught in stock market dream that anything could happen, at any moment, without notice; especially those selling volatility for a living.

Which brings us back to Mr. Turkey. The turkey sees 1000 days of small gains followed by one day of large losses, and we can’t help but think of that as a lot like the performance profile of option sellers. The reason is option sellers are technically short volatility programs which on the whole make a living by risking a large amount to make a small amount. There’s an old saying about option sellers ‘picking up pennies in front of a freight train’. They can get away with this (in theory), because they have a large winning percentage where the large losses are very rare.

But no matter the math and no matter how good your option selling manager is, or has been to date, there is no denying that they have a greater than zero chance of a large negative surprise akin to the turkey’s 1001st day at some point in the future.  Indeed, just this year (last month to be exact), a spike in volatility in October sent some option sellers to the dinner table, as they didn’t see the turkey’s day of demise coming.

Now, professional option selling managers design their programs not to lose everything on a single day like the turkey; but they are betting against the occurrence of such a day, being set up to realize frequent but small gains in exchange for the risk of infrequent but very large losses (making them perhaps a distant cousin to the turkey).

In the meantime, Happy Thanksgiving to you and yours from the Attain team!

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)