Managed Futures v. Bill Gross

Whether or not Bill Gross is actually short US treasuries in his flagship PIMCO program is up for debate. He said no on CNBC, but one of our favorite bloggers, ZeroHedge, essentially called him out- saying, No, you are short. But whatever side you take on that battle of semantics, Mr. Gross has made no secret of his worries about the massive US debt and deficits leading to lower prices in US Treasuries. By all accounts, it doesn’t look like Mr. Gross thinks the next leg in bonds will be UP.

But a funny thing has happened in the last few weeks while this debate has been playing out and silver and crude retreated from their highs. While everyone bemoaned their long-only ETF investments (don’t say we didn’t warn you), another trend began to emerge elsewhere…. In bonds.

Turns out, for all his grandstanding, Gross appears to be incorrect (for now). Bonds have not been going down under the burden of cumbersome U.S. debt. In fact, the current trend is decidedly UP.

How far up? The 30 year bonds have gained 5.33% since April lows, while 10 year notes are up 3.75%. Remember, bond prices move inversely of the rates, so rates moving lower means prices have moved higher.

Gross may be missing out on this bond action, but many of the managed futures programs we track have identified and are participating in the trend. Programs we track which are holding long bond positions include 2100 Xenon Fixed Income, Accela Capital Global Short Term, Auctos Capital Global, Blue Fin, Clarke Global Magnum, Clarke Worldwide, Covenant Aggressive, Futures Truth Sam 1010, Integrated Global Concentrated, James River Capital Navigator, and Robinson Langley.

Are we surprised? Not really- managed futures programs tend to love trending bond markets. And this is how systematic managed futures programs are supposed to work. They don’t care how much debt the US has or if the largest bond investor in the world is betting against the up trend. They ignore all of that noise, and merely identify and react. Identify, react, repeat. Identify, react, repeat.

So, while the rest of the world was looking the other way, many managed futures identified a new up trend in bonds and reacted to it – putting on long positions. These programs are all in a position to have added to their P/L this month, but will it be enough? The same price correction that distracted us from Gross’ prosthelytizing also decimated returns for many programs caught off guard by the departure from the trend. While the bond market may help even things out some, it may not be enough to bring some programs into the black for the month of May.

Moving forward, we’ve got an epic battle on our hands. On one hand is managed futures, riding a technical trend higher and ignoring the doomsday financial prophets. On the other hand, bond king Bill Gross is betting that fundamentals will eventually crash US bond prices and interests rates inevitably climb, and is biding his time on the matter. Managed futures is winning this round, but who will win out in the end?

We certainly wouldn’t mind seeing Mr. Gross on the same side as managed futures next time (that’s a lot of fire power), but that will likely have to wait until this trend runs its course and bond prices start heading lower.

Look Out Below…

Just as managed futures were starting to gain back some steam (see week in review here) with “risk on” long positions in energies, metals, stock indices, and currencies;  Goldman Sachs goes and messes everything up with comments that they are exiting their long commodity trade…. (sure would be nice to be their prop desk and trade ahead of their comments, as there is no ‘insider trading’ in commodities)

We’re seeing losses almost across the board, with wheat, corn, palladium, soybeans, soybean oil and crude oil leading the charge downward, and only flight to quality instruments (plus pork bellies and cocoa, oddly enough, positive on the day) higher. None quite closed limit down, though corn played with the idea several times before rallying back.

We’ve been wondering when a correction would come to surging commodity prices for awhile now (check out our most recent post on it here), and continue to believe that an extended sell off for commodities would be good for managed futures.

But for now, the slump seems to have caught the bulk of the programs we follow off guard, with most either retaining some of the long positions they had before the March sell off, or new long positions entered into on the subsequent rebound off the March lows.

Of the CTAs we follow, spread trader Emil Van Essen is short back dated corn and crude spreads; systematic multi-market program Blue Fin Capital is short crude; and short-term multi-market Accela Short term is short wheat… and that’s it. You can be sure they’re hoping the correction sticks around long enough to be of benefit to them.

4/12/2011 Futures Performance via Finviz


Can trading gains offset pain at the pump?

With Crude Oil up $2 more dollars today, it seems like just a matter of time until we see $5 per gallon gas in the US. (here in Chicago we’re already seeing $4.50 at some stations).

Those of us in the managed futures industry usually have an odd take on price increases such as this, sometimes actually ‘cheering’ prices higher despite the pain it will do to our budgets and credit card bills.

This is because our clients are usually benefitting from such trends higher, thanks to most managed futures programs being designed to try and capture trends in one manner or another. Indeed, one of the main reasons for getting involved with managed futures for many is the desire to participate in trends such as the one we’ve seen in crude (see our past post on Crude’s breakout signaling a new trend up).

Crude Over 5 Years

But it seems a little bit different this time. For one, most managed futures program which are long Crude just got long recently (around $100), so while profitable – it’s not that profitable that you can ignore what’s happening at the pump.  Secondly, do we really want $5 gasoline throughout the summer? Will managed futures participants really offset the extra real costs they will incur via their long exposure in a managed futures program (whose gains could be offset by losses elsewhere).

And finally, participation in managed futures doesn’t guarantee you will participate in trends such as the move higher in Crude Oil. Of the CTAs we track, there are only a handful of programs with long energy exposure.

Short term systematic programs Futures Truth SAM 101 and systematic multimarket programs APA Strategic Diversification, Auctos Capital Global, Covenant Capital Aggressive, James River Navigator, Futures Truth MS4, and Robinson Langley Capital are all long crude, while short term systematic Accela Global Short Term is long JPE Gas and Bouchard Capital is long heating oil.

While these programs will likely be cheering Crude higher yet, the higher costs for gas, plane tickets, food, and everything else is likely to dampen the enthusiasm somewhat.  The bottom line – sometimes you have to be careful what you wish for…

Managed Futures Spotlight: Accela

Accela Teaser ImageIt’s that time of the month- time for a Managed Futures Spotlight Newsletter. This month’s Managed Futures Spotlight highlights the Accela Capital Management Global Diversified program, a systematic multi-market program we started tracking on our platform in early 2010. Ranked #7 in our most recent semi-annual managed futures rankings, the Accela Capital Global Diversified program has been one of the top performing multi-market programs at Attain over the last 15 months, having been one of the few systematic multi-market programs able to post profits in 2009.

After evaluating and following the trading on our books for over a year, we are ready to give a more detailed account of what we’ve seen out of them, and we’ve mostly liked what we’ve seen.

Click Here to read more: http://bit.ly/hGN9d4

 

Corn, Wheat, Soybeans at fresh 1 to 2.5 year highs benefiting Managed Futures

We mentioned in our 2011 Managed Futures Outlook how it may be tough for managed futures to see gains this year from further upside moves, but the entire grain complex is proving us wrong over the past several weeks, and again today – with the grain complex making fresh 1 to 2.5 year highs today after a bullish US crop report painted a picture of tightening supplies (stock to use ratio at 5% lowest since

Managed futures have, for the most part, participated – with those programs without profit targets and longer long term models maintaining the most exposure, and those with profit targets (they already booked gains on many grain positions) or looking at shorter term data with some positions, but not as many as one would like gievn the recent highs.

Looking at the charts to the right and their nice upward sloping trends over the past two and  half months, we would expect systematic, multi market managers (aka trend followers) to be involved, and wouldn’t you know it, the list of managers we track with long grain exposure reads like a trend following anonymous roster:

“Who’s who” of the Managed Futures industry in Florida at the MFA Conf.

While those of us in Chicago are preparing for one of the top 5 Blizzards of all time and east coasters continue to dig out from their own battles with snow, the “Who’s who” of the Managed Futures industry has descended upon sunny Palm Beach, FL for a week of private meetings with both managers and investors at the MFA (Managed Funds Association) Network 2011.  The MFA hosts two major events each year (Florida and Chicago) of which Florida is generally the most well attended – who could blame anyone for wanting to go to FL in the middle of winter?

Walter Gallwas, President and Founding Partner of Attain is on site representing our clients and will be meeting with the following diverse range of managers:

The next conference will be June 21 – 22, 2011 here in Chicago, and we invite any investors looking to meet managers face to face to attend…we’re happy to help schedule meetings on your behalf.

Newsletter: 2010 Reviews on 53 different Managed Futures Programs

After more than 5 weeks of painfully extracting information from 35 different managers we work with (you would think they would be more willing and able to share the how, when, why, and where of the year just gone by), our annual CTA by CTA review highlighting what happened for each of the programs we track in 2010 – is up on our site at http://bit.ly/dHxbS1

We’ve got over 21 pages of details on 35 managers and 53 managed futures programs, with links to the performance track records of each on the Attain website.  What will you find….that it was a good year for multi-market systematic programs (the bulk of managed futures investments), a down year for short term programs, an up year for discretionary traders and spread traders, and a mixed bag for specialty managers,  stock index traders, and option selling managed futures programs.

There were outright winners (AccelaClarke WorldwideRosetta, and Dighton), outright losers (HB CapitalPaskewitz,Dominion, & Clarke Global Basic), and a few managers (Emil Van EssenFCI2100 Xenon) positive, yet below what they would have hoped for (and below the managed futures benchmarks).

Click here to view the CTA by CTA report: http://bit.ly/dHxbS1