Different Exposure, Different Price

Long Only Commodities as an asset class has been plummeting since around April last year, and the downtrend continues into 2015. The average move of commodity futures in January came out to be -5.02%, compared to ETFs -7.54%, with ETFs underperforming the futures markets they supposedly track by 2.52% {Past performance is not necessarily indicative of future results}.

Here’s our monthly look at:

1. How the numerous commodity ETFs which have sprung onto the scene the past few years are tracking a simple strategy of just buying the December futures market of that commodity, under the theory that the ETF will have to roll their positions periodically throughout the year, and in doing so take on costs the simple strategy does not have.

2. How the passive investment strategy of being long commodities (either via futures or ETFs) compare to an active strategy going both long and short commodity markets via a professional commodity trading advisor (as tracked by the BarclayHedge Ag Trader Index).

(Data as of January 30th, 2015)

Commodity ETF Over/Under Performance 2015

CommodityFuturesETFDifference
Crude Oil$CL_F
-4.47%
$USO
-12.48%
-8.00%
Brent Oil$NBZ_F
-6.45%
$BNO
-10.57%
-4.12%
Natural Gas$NG_F
-6.63%
$UNG
-7.45%
-0.82%
Cocoa$CC_F
-6.02%
$NIB
-8.45%
-2.43%
Coffee$KC_F
-2.13%
$JO
-3.21%
-0.80%
Corn$ZC_F
-4.85%
$CORN
-6.27%
-1.42%
Cotton$CT_F
-2.53%
$BAL
-1.99%
0.54%
Live Cattle$LE_F
-4.20%
$CATL
-8.08%
-3.88%
Lean Hogs$LH_F
-4.21%
$HOGS
-13.59%
-9.39%
Sugar$SB_F
0.83%
$CANE
1.77%
0.94%
Soybeans$ZS_F
-5.96%
$SOYB
-6.17%
-0.21%
Wheat$ZW_F
-13.41%
$WEAT
-14.02%
-0.62%
Average-5.02%-7.54%-2.52%
Commodity Index $DBC-5.69%
Long/Short Ag Trader CTAs0.61%

(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

Alternative Links: “We Basically Controlled the Oil World”

Crude Oil:

“We basically controlled the oil world,” said  Al Kaplan, former president of Phibro’s energy unit. Mr Kaplan. “It was quite amazing. We had very good people. There was no price dissemination, so we used to tell people what the price was.”

Rise and Fall of a Commodities Powerhouse – (FT)

3 reasons for oil’s crazy bounce – (MarketWatch)

7 Technical Indicators to tell when the Crude Sell Off is Done – (Attain Alternatives Blog)

Managed Futures:

[Read more…]

Futures Market Winners/Losers of 2014 – The Last Five Years Edition

This year was anything but boring in the futures markets. There were plenty of major moves in multiple markets, and it seems just about every market not at 5 year highs (stocks, the US Dollar, and cattle) was at 5 year lows (Crude, Copper, Yen).  That’s in stark contrast to the past few years, where there’s been more markets up than down.  But it was two black liquids stealing the headlines – with Coffee leading the way on the upside, and Crude Oil the big loser on the downside. All those who had the Long Coffee/Short Oil trade on, take a bow – that’s a winner! (What could we call that – the Texas Latte, the Beans over Barrel spread?)

[Please note – Finviz does some weird things around contract rolls, which can make their percentage gains over longer periods different than what would be found using a continuous contract or the cash/spot market, nonetheless, we feel it is representative of each market’s 2013 movements]:

2014 YTD Futures(Disclaimer: Past performance is not necessarily indicative of future results)
Chart Courtesy: Finviz

  • It was a mostly down year, with 63% of markets down; compared with 51% up in ‘13, 80% up in ‘12, and 85% up in 2010
  • While it seemed more volatile this year, just 15 markets finished up or down more than 15% (compared with 16 last year).
  • Having said that – VIX futures finished about 20% higher than where they started the year, despite stocks at all time highs (curious)
  • US Stocks & US Bonds turned in near identical performances in 2014, both up around 12%. Not every day you see that.
  • Commodity markets were routed. Crude made the headlines, but Cotton, Soybeans, Rice, Oats, Platinum, Sugar and more were all down double digits.
  • Gold, for all the headlines, was basically unchanged
  • Currencies were in play, for the first time in what seems like forever, with the USD making a very sneaky move up to multi year highs; the Japanese Yen and Canadian Dollar hitting 5 year lows, and the Euro, Aussie, and Swiss testing multi-year lows.
  • The headliner Coffee was up impressively, but despite being up around 50%, it’s still about 50% below its 2011 highs (needs to rise 100% or so to get there)
  • Many markets are at 5 year lows, including:  energy futures (Crude, Heating, Gasoline), many metals (Silver, Platinum, & Copper), currencies (Jap Yen and Canadian Dollar), and a few random like Cotton,
  • Wheat & Corn – Despite being some of the most volatile futures markets, you wouldn’t know it by this chart, down only (-1.9% and 4.7%) this year

So what will 2015 bring? A big rebound in Oil prices (a rise back to $80/barrel would be a gain of about 60%)? The much expected sell off in US treasuries? A commodity rebound in metals, softs, and grains? None of the above?

Luckily, professional managers don’t need to know the answers in order to have a successful 2015. They just need to be able to identify and capture any such moves when they happen (no small task, to be sure; as we’ve seen in recent years….but more than a few will be up to the task).

Happy New Year!

Commodity Exposure Breakdown YTD

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. Impressed by that UNG outperformance? check these stats
  2. The averages of the ETFs and Futures all are within a percentage of each other.
  3. Ag CTA’s (Active long short agriculture trading) are posting a 8.99% return, beating out the Commodity Index DBC. (See Trade commodities instead of “invest” in  them?)

(Performance as of 8/31/2014)

Commodity ETF Over/Under Performance 2014

CommodityFuturesETFDifference
Crude Oil$CL_F
1.78%
$USO
1.25%
-0.53%
Brent Oil$NBZ_F
-2.03%
$BNO
-5.66%
-3.63%
Natural Gas$NG_F
-2.67%
$UNG
7.59%
10.26%
Cocoa$CC_F
19.06%
$NIB
18.80%
-0.26%

Coffee$KC_F
67.53%
$JO
75.02%
7.50%
Corn$ZC_F
-19.16%
$CORN
-15.79%
3.36%
Cotton$CT_F
-15.12%
$BAL
-15.83%
-0.71%
Live Cattle$LE_F
16.75%
$CATL
9.90%
-6.85%
Lean Hogs$LH_F
15.72%
$HOGS
2.77%
-12.96%
Sugar$SB_F
-9.15%
$CANE
-0.28%
8.87%
Soybeans$ZS_F
-9.78%
$SOYB
-6.39%
3.39%
Wheat$ZW_F
-12.01%
$WEAT
-12.81%
-0.78%
Average4.24%4.88%0.64%
Commodity Index $DBC-2.42%
Long/Short Ag Trader CTAs8.99%

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

Alternative Links: A Mixed Batch

Performance:

Hedge Fund Industry Waits for Managed Futures to Recover (Subscription Required) – (Efinancial News)

Managed futures August Performance — (Attain Alternatives Blog)

Hedge Funds:

Hedge fund industry snapshot: $2.6 trillion in 11,000 funds – (CNBC)

Liquid Alts:

Flows to Liquid Alternatives Strengthen in July – (Daily Alts)

Vanguard urges caution on liquid alts – (Investment News)

Is your ‘alternative’ fund a ticking time bomb? – (Market Watch)

CME:

GFI Group Shareholder Sues to Block CME Group Acquisition – (Bloomberg)

CME Group Announces the Launch of Illinois Basin Physically Delivered Coal Futures – (Market Watch)

Futures & Miscellaneous:

Big Crops Drive Futures To New Contract Lows – (Farm Futures)