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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Managed Futures February Performance: Some Programs Shine, Indices Stagnant

February was a bit of an odd month, as several of the programs we track at Attain saw pretty good months, while the main benchmark indices were roughly flat – perhaps showing the small managers doing better than the big ones included in the indices? The benchmarks looked like this:

Updated feb managed futures(Disclaimer: Past performance is not necessarily indicative of future results)

Even though the Newedge CTA Index had the highest performance of the four at 0.61% in February, the index only reported one daily performance above/below 1%. For the month, the average of the four ended with a +0.11%, but it wasn’t enough to pull the indices performance out of the red YTD {Past performance is not necessarily indicative of future results}.

New trends developed towards the end of January, but quickly reversed to begin February, making some markets look like the damned V-shape reversal we love to hate. But not all trends experienced a quick reversal… Coffee continues to be the roasting commodity of the year thus far, up 71% already this year (our commentary here, and here), while Oats, and Lean Hogs are both at all time highs.

It’s trends like these that caused a wide dispersion in results in February – with some of the programs we track with less than $1B AUM seeing much better results than the indices show:  with our internal estimates for February showing Brandywine Symphony +5.70%, Clarke Worldwide +5.50%, Quantum Leap Capital +4.90%, Covenant Capital 4.50%, Neural Capital Sentinel +3.72%, Tanyard Creek +3.50% and Sona Trading +2.70% all putting together impressive months {past performance is not necessarily indicative of future results, above are estimates}. It should be noted that five of these programs are still battling to recover from drawdowns and we typically don’t like cherry picking one good month out of 3 years of struggles for managed futures, but it is still nice to see at least one month of good performance.

Of course, it wasn’t all roses – with a little less than half of the programs we track showing losses per our internal estimates in February.  Discretionary agriculture traders were amongst the hardest hit, with our internal estimates showing Typhon Plutus Grain -4.30%, Rosetta Capital Rosetta Program -6.00%, and Typhon Tauros Livestock -8.35% finishing in the red.

DISCLAIMER: The specific program estimates mentioned above are calculated using the liquidating value of a single client at Attain trading the listed program, and are believed to be representative of all similar clients invested in the program.  A 20% incentive fee and 2% annual management fee are deducted from all profitable months, regardless of whether the program is at a new equity high.  These numbers may vary from the actual performance numbers presented by the CTA upon completing their accounting for the month gone by, and should not be considered apart from the performance numbers listed in the disclosure document for the program listed.

 

Chart of the Week: Coffee Cuing Up an Up Trend?

Move over Natural Gas… the latest commodity that is perking up (pun intended) is everyone’s favorite morning nectar, Coffee.  The $7 Billion dollar market is up almost 30% YTD, and was up 8 consecutive days before some profit taking today {past performance is not necessarily indicative of future results}.

Coffee one(Disclaimer: Past performance is not necessarily indicative of future results)
Chart Courtesy: Finviz

First in understanding the Coffee market, there are two important distinctions… Robusta Coffee (the dominant market traded at the NYSE Euronext) and Arabica Coffee (traded at ICE). [the finviz chart above shows the Robusta futures]. But it’s not just where they are traded, there’s also a difference of where they’re grown. Robusta Coffee is grown at low altitudes (mainly Asia), while Arabica typically comes from South American countries and is grown at higher altitudes (Colombia, Brazil), laid out nicely in this handy infographic:

Coffee infographicInfographic Courtesy: The Pilot’s Blog

And for you coffee snobs out there, there’s a difference between the taste, at least according to The Pilot’s Blog:

“Robusta has a neutral to harsh taste range and is often likened to having an “oatmeal-like” taste. When unroasted, the smell of Robusta beans is described as raw-peanutty.

Arabicas, on the other hand, have a very wide taste range (depending on its varietal). The range differs from sweet-soft to sharp-tangy. When unroasted, Arabica beans smell like blueberries. Their roasted smell is described as perfumey with notes of fruit and sugar tones.”

Both contracts are up big this year, but for different reasons. Bloomberg states that in Vietnam (the leading Robusta producer), farmers have stopped trading to celebrate their new year. Arabica coffee is a different story. Central and South America have been struggling with a crop disease called, “leaf rust,” while Brazil deals with a drought that is hurting supply, via the Wall Street Journal.

Wall Street Journal CoffeeGraphic Courtesy: The Wall Street Journal

“It was the hottest January on record for parts of southern and southeastern Brazil, Somar Meteorologia in São Paulo said. Rain isn’t likely to fall in Minas Gerais state, which produced about 72% of Brazil’s coffee last year, until mid-February, said Patricia Vieira, a meteorological technician at Somar Meteorologia. The arabica-coffee harvest will begin in late April or early May.

Conab, the government crop agency, expects this year’s coffee crop to range between 46.5 million and 50.2 million bags, based on estimates released in early January. Others have given different estimates, and some analysts say it is too soon to known by how much the lack of rain will reduce the size of the crop.

Some forecasters had predicted Brazil’s harvest would be as high as 60 million bags. Bags are the standard measure of volume and on average weigh about 60 kilograms each. One bag of coffee yields 7,500 shots of espresso. “This changes the bag-count idea,” said Sterling Smith, a futures specialist at Citigroup in Chicago. “If the dryness persists, the 60 [million-bag estimate] is obviously off the table.”

Whatever the reason, this move higher might be little more than a dead cat bounce with coffee coming off a huge down trend over the past year, especially if prices are rising only because of the Vietnamese New Year (does anyone really believe that??). A few CTAs we monitor (Covenant Aggressive, Brandywine Symphony, and Sona Trading)  have nibbled at this trade, however, hoping all that space to the upside becomes a nice ‘robust’ (pun intended) up trend.

Big Picture Coffee

(Disclaimer: Past performance is not necessarily indicative of future results)
Chart Courtesy: Finviz

P.S. – If you’re looking to play an uptrend in Coffee like StockTwits founder Howard Lindzon, beware the ETF cleverly named JO. These futures tracking ETFs have to pay what’s called a roll yield, which has caused them to severely underperform the markets they are designed to follow.

Chart of the Week: Sugar’s Textbook Downtrend

With metals, energies, stock indices, and grains representing the majority of the trading in the futures space, sometimes the Soft markets get, well…  ignored. Our last look at the softs markets was when sugar was showing a certain mountain type shape, not knowing where it would go from there.

But since then, Sugar has continued its slope, down 24% since October with 50 out of the past 70 days down, and now at its lowest point since 2010 (although up a little today) {disclaimer: past performance is not necessarily indicative of future results}.

Sugar(Disclaimer: Past performance is not necessarily indicative of future results)
Chart Source: Finviz.com

The reasons for the down move aren’t that people are no longer asking for sugar in their coffee or switching to Splenda (what happened to the War on Sugar), but that the big three sugar producers: Brazil, Thailand, and India are expected to outpace demand by 4.7 metric tons come September. That’s led to a lot of people piling in on the short side of this trade, as evidenced by the CFTC commitment of traders data via the Wall Street Journal.

“Money managers have been increasing their bets that raw-sugar prices would continue to fall. In the week ended Jan. 21, those bets outweighed wagers that prices would rise by the largest margin since July, according to the latest data from the Commodity Futures Trading Commission.”

But is there more than just supply and demand at work here? After all, back in October, one of Brazil’s largest sugar companies lost 180,000 tons of sugar in a fire (10% of Brazil’s export in a month), and the markets didn’t even flinch. So, how is it that a majority of traders in the sugar market are short positions? Yes, 4.7 tons is quite a bit more sugar than expected, but is there another factor at play?

Well, it just so happens that Brazil produces 25% of global production and 50 percent of world exports, and their economy (currency) is in a bit of a tight spot, after the fed’s decision to taper.

“Weakening currencies in Brazil and other large sugar producers also are expected to encourage exports, which could add to already robust supplies, said Michael McDougall, a senior vice president at brokerage Newedge.

When currencies in sugar-exporting countries weaken against the U.S. dollar, producers there often choose to export their crop because they would receive more of their local currency back for product sold abroad in dollars.”

A quick peek at the MSCI Emerging markets currency index shows a pretty similar down trend to Sugar, making the Sugar trade a sort of synthetic emerging markets short trade for all those who were complaining their managers weren’t short the Turkish Lira or Argentine Peso (those are so thinly traded, not many managers play in that space).

MSCI Emerging Currency Index(Disclaimer: past performance is not necessarily indicative of future results)
Source: MSCI

So, combine a lot of global supply with Brazilian Sugar farmers more willing to sell their Sugar for Dollars than their falling currency, and you have a classic down trend of your hands. Whatever the reason, it’s just the sort of trend most managed futures programs like to identify and ride out as long as they can.  And many futures traders and CTA’s alike have caught on: including Covenant Aggressive, Brandywine Symphony, Sona Trading, Auctos Global Diversified, Integrated Managed Futures, and Clarke Worldwide.

How do they do it?  Magic? Nope. Boots on the ground in Brazil analyzing the crop? No sir. They do it by tracking markets like sugar and entering into a short trade when the market breaks below its 20 day low, 200 day moving average, lower Bollinger band, and so forth. They do it by being wrong a lot when the market has a false breakout, in order to be right when the market keeps going that direction.

Natural Gas Linkfest

We’ve talked not so long ago about Natural Gas becoming boring, if not an outright flight to quality trade for many (in the Jap Yen, it can’t go any lower mold), but it didn’t used to be that way. The term Natural Gas futures used to scare traders silly – with double digit percentage gains/losses in a day not all that rare.

Well – all it took to bring that back was a polar vortex plunging a big portion of the US into bitter cold (like, -20 below wind chill cold in Chicago), and Natural Gas shooting upwards, with a 19% range this week as it tacked on a gain of 9.4% today {past performance is not necessarily indicative of future results}.  This is on top of gains in November and December – and is just the kind of move momentum traders love to see. CTA’s that we work with currently long Natural Gas and cheering on the cold temperatures include: Covenant, Quantum Leap, Brandywine Symphony, and Sona Trading.

So… while everyone else will likely be talking about the Dow’s back to back days losing about 500 points – we can help but give a little love to Natural Gas with a special Nat Gas edition of our weekend reads:

  • Natural Gas Volatility Exploding — (Attain Capital)
  • CNN talked Natural Gas highs and made mention of one of our Natural Gas Tweets — (CNN)
  • Natural Gas Tops $5 for First Time Since 2010 — (Wall Street Journal)
  • This guy was calling for $8 Nat Gas  in 2012. He was off by a year but looks right now… low prices reliant on warm winters: — (Forbes)
  • Fun Facts for Natural Gas — (Spectra Energy)
  • Big gains for natural gas fuel big losses for hedge funds — (Reuters)
  • Arctic Cold Cuts Fuel Supplies as Refineries to Pipelines Freeze — (Bloomberg)
  • You think Nat Gas is bad… Propane prices doubled in two days — (Press Citizen)

For those of you new to the Natural Gas conversation, We happen to talk Nat Gas on our blog quite a bit, it turns out…

1. “Natural Gas on the Cusp

Back in March, Natural Gas was stuck in a trading range of between $2 and $6 for 5 years.

2. The Oil/Nas Gas Slide Continues

The impressive decline of the spread between Crude Oil and Natural Gas in 2012.

3. Nat Gas: Return of the Widowmaker?

We stack up and compare Nat Gas average daily moves percentages with largest daily move percentages.

4. “Sky High Talk on Low Natural Gas Prices

Someone (who wanted to remain anonymous) with 35 years of experience in the natural gas industry, shares his insights.

5. Natural Gas 2011 Yearly Performance

The yearly performance of Natural Gas Futures along with the other futures contracts back in 2011.

6. The Curious Case of Natural Gas

Would T. Boone Pickens natural gas legislation provide more supply to the industry, and therefore push down prices, or would the markets not follow supply and demand rules?

7. Natural Gas Price Increase a Natural Result?

Would the T. Boone Pickens legislation change the landscape of not only the natural gas industry, but also the Crude Oil industry as well? Look and find out.

8. Natural Gas 2010 Yearly Performance

The yearly performance of Natural Gas Futures along with the other futures contracts back in 2010.

 

1st at Morningstar = 144th in the Real World

361 Capital has a press release out announcing its 361 Managed Futures Strategy mutual fund (AMFZX / AMFQX) was rated the top-performing mutual fund in its category by Morningstar for the 12 months ending June 30, 2013.  Congratulations to them, they are surely doing something better than the rest of Morningstar’s “Managed Futures” category (quotations meaning the heavy use of sarcasm) – but we can’t help but think this is a little like being the cleanest dirty shirt. We’re the curious sort, so we couldn’t help but wonder where their 8.12% return over those 12 months would rank amongst the 784 programs in our database and against our recommended list.

As it turns out, that #1 ranking would put them all the way down to 144th place when looking at all programs (but still in the top 20% of all programs), and below a third of our recommended list. Now, we know this is a little bit of an apples to oranges comparison (after all, those managers above 361 charge the full 2 and 20 fee structure, which is just impossible quite possible to overcome), and to be fair, they weren’t implying they were #1 across the whole managed futures universe, stating clearly it was just in the Morningstar managed futures category.

So while congratulations may be in order, there are just two little problems we see –

1. There’s more to being successful than just last year’s returns – a true ranking needs to consider the risk as well.

2. This is a counter-trend strategy which operates on U.S. stock indices only; meaning – it likely won’t provide the crisis period returns one might expect from a ‘managed futures’ fund during a market crash. Indeed, being counter-trend, we would expect it to suffer losses during a crisis period where stock indices see extended down moves.

The takeaway – be careful out there. 361 may fit in great with what you are trying to do in your portfolio; but if it’s in your portfolio because of the name ‘managed futures’, make sure you understand exactly how it will and won’t correlate to managed futures in a market crisis.

Winton and AHL Beat Handily in May

2013 has been a resurgent year of sorts for trend following programs.  The big boys – Winton and AHL have certainly been enjoying the ride on calmer waters after a couple tough years of trading.  We’ll even give a shout out (do people still do that?) to Winton for hitting new equity highs last month. That’s quite a feat with $20+ Billion under management.

But it’s a smaller program that caught our eye in May (and truth be told, has been a favorite among staff and clients for some time now). We’re talking about Covenant Capital, whom we spotlighted back in 2011. Covenant managed to post an impressive return of +5.50% in May (our estimate) versus reported losses of -2.40% for Winton and -10% for AHL (ouch!). Now, this is just one month – and with past performance no guarantee of future results, these standings could easily reverse themselves next month or any time after that.  But being able to zig like that while the rest of the industry zagged quite a bit the other way is impressive to us.

The million (or maybe even billion) dollar question is whether it’s repeatable – we sure think it is from Covenant’s standpoint and the skill they bring to the equation. But there is also the big boy side of the equation to consider and what may hamper their returns in the future. We’ve covered some of this before here and here, but pictures can often explain a concept better than words – and we felt this one did just the trick:

This is our visual example of nearly $50 Billion of managed futures assets in Winton and AHL trying to get out of a trade at the same time. When the long Nikkei/short Yen trade unwound quickly last month, this was exactly the picture popping into our heads when thinking about how to exit so much exposure to those trends (if they did exit, we don’t know). The worry is that these big boys become too big to succeed.

For our money, we would rather be with a manager who can move on and off the bus freely when they want. We would rather be with a program like Covenant, for whom May is not just a one hit wonder, with Covenant having out-performed Winton in six of the past nine years, and so far again this year after an impressive May.  Color us impressed. But don’t start throwing billions at them just yet – we want to keep them performing well in the mid-size range just a bit longer!