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

Commodity
Futures
ETF
Difference
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)

Alternative Links: The Same old Song and Dance

There Is No Alternative (Face palm) – (Wealth Track)

Exotic Investments ≠ Alternative Investments (contrary to what Bloomberg says) – (Bloomberg)

Trend Following is Your Friend Til it Isn’t – (Bloomberg View)

Do we still need to do this? A Trend Following Rebuttal – (Attain Alternatives Blog)

Regulation:

CME Group seeks feedback on Livestock trading hours on CME Globex – (CME Group)

Education:

Use Alternative Investments to Hedge without Hedge Funds – (Nasdaq)

CTAs:

Man Group Reports Rise in Assets – (Wall Street Journal)

Futures & Miscellaneous

LME begins position reporting data for base metals — (Reuters)

The Changing Face of World Oil Markets – (National Bureau of Economic Research)

23 Commodity, Equity, and Currency Markets since the 2009 Low

Markets Since 09It seems like only yesterday we had 700 point down moves in the Dow, Lehman going bankrupt, and billions and billions in bailouts being handed out as the stock market made new lows seemingly every week, dragging down most commodity markets with it. But can you believe it’s actually been 5 years, with the low of the crisis happening 5 years ago yesterday – March 9, 2009. The first 3 years sure went by quickly… as we didn’t really know we were in the clear, and now the last two have been a blur of new highs in the stock market seemingly every week.  My how things change in a hurry.

Now, that was the low in the US stock market – other markets like Crude Oil bottomed before then, and some like Wheat bottom after that – but it’s hard to find many losers among the basket of markets we track since that fateful day 5 years ago. Everything on our list is up since then besides the US Dollar and Japanese Yen (imagine that, the two economies which went nuclear in terms of providing capital to the markets).

Some items of note include Copper outpacing Gold almost 2 to 1… (funny we don’t recall any stories about Copper vending machines over the past 5 year); Cotton surging over 140%, and Crude Oil the only other market not a stock index having more than doubled with gains of 124% (of course that would have been tough to realize with the cost of carry and negative roll yield.) (Source: All data in the chart to the left is cash data provided from CSI.)

Meanwhile, Bonds have managed to stay positive despite 5 years of predictions of rising rates and debt ceiling debates; while Natural Gas somehow managed to get into the black after spending most of the 5 year period worse than the March 9th, 2009 low.  And most impressive of all, of course, is US stocks, where the S&P has even become a bit of a third wheel despite more than doubling, because of the high flying Nasdaq and Russell 2000 which are both better by more than 225%. Wow – why didn’t Bernanke just come out and tell Americans to buy stocks, on margin, on March 9th – and guarantee against any losses…

The question is – which markets will be the top performers over the next  five years. Will we see a five year replay of the start of 2014, where last year’s laggards are this year’s stars (so far), or will history repeat itself in one of the greatest bull market continuations of all time (not sure we can count on that…unless Bernanke wants to come out of retirement and make that guarantee). To remind us just how things can change from one 5 year period to the next, we decided to use March 9th, 2009 as a marker and look at the 5 year returns of the main asset classes both leading up to that point, and since that point. You can see a tale of two five year periods, with the two Asset Class scoreboards almost an exact inversion of one another.

2004 2009 Asset Class2009 Present
(Disclaimer: Past performance is not necessarily indicative of future results)
Sources: Managed Futures = Newedge CTA Index,
Bonds = S&P/CitiGroup International Treasury Bond Ex-U.S. Index
Hedge Funds= Dow Jones Credit Suisse
Commodities = UBS Commodity Index (DJC,) Real Estate = iShares DJ Real Estate ETF (IYR);
World Stocks = MSCI ACWI ex US Index, US Stocks = SPDR S&P 500 ETF (SPY)

Is The World Ready To Trade Futures On Their Mobile Phones?

iBroker_1Ready or not – mobile futures trading (and stock, and options, and baseball cards) has been going on for years now; with firms like E*Trade famously making it appear so easy to trade stocks on your iPad a baby could do it (in their crib) –  but the first attempts at it (and even a lot of the current offerings) have been rather clunky and not very easy to use.

Enter a new futures trading app called iBroker, which is easily the best trading app we’ve seen in terms of ease of use and functionality. See the app in action via the website here:  www.iBroker.com. [In full disclosure - Attain is involved with iBroker, doing the distribution for it in the U.S.].

iBroker has been live in Europe and through a single US Broker for years – but is ready for the big time in the US as of today – with the iBroker app now connected to the popular desktop platform CQG.  Meaning… any CQG user at any participating FCM can now access their balances, positions, orders, and place trades via their existing CQG login. Cool!

But our brains immediately jump to the next question…

 

 

Are we ready for professional managers to be trading client accounts via their mobile devices?”

To tell you the truth, whether you’re excited for the tech advancement or worried by it, the move to mobile devices and unplugged trading seems pretty inevitable – just look at PC versus tablet shipments.  But will we start to see professional commodity trading advisors using their mobile devices to place their program’s trades on behalf of the client accounts they’re managing?  Will the guy on the train across from you or waiting for a flight next to you be entering 100′s of contracts for the millions he has under management. The overnight trading desks these CTA’s pay a few bucks per trade to execute orders sure don’t want that, and as a client, I’m not sure I want a manager rolling over in the middle of the night and slinging some DAX futures around for my account.

But who knows – maybe this becomes more common place, if nothing else, you could see such professionals using the app for checking quotes and getting fill notifications and essentially staying on top of the markets while at the kid’s soccer game or trying to raise money at a conference.  As Russell Crowe quips in his role as Captain Jack Aubrey in the Master & Commander Film: What a fascinating modern time we live in.

iPad

 

Record Volume Growth at Dubai Mercantile Exchange, Still Lags CME & ICE

Earlier this year, the Battle of the managed futures conglomerates (CME vs. ICE) made an interesting turn.  As we noted in a previous post, WTI Crude Oil future contracts were taken over by Brent contracts on the CME’s New York Mercantile Exchange. This is important to note because WTI was the preferred crude oil contract around the world, and primarily traded only on the CME, giving them the leg up they needed.  For those of you who are new to our blog, you’re probably wondering , what does that mean for the exchanges? You lose liquidity; you lose the enticement from investors.

But there’s another Exchange that is making headlines in the managed futures world, The DME. The Dubai Mercantile Exchange just came off a record trading volume this past month at 6,978 ADV. To put that in perspective, that’s a 9% bump from their previous record, and a 32% bump compared to June’s numbers last year. If you haven’t heard a lot about the DME in the past, there’s a reason; it’s only been around for eight years.

So what does this mean for the international battle between the CME and the ICE? Well Goldman Sachs, JP Morgan, and Morgan Stanley started becoming shareholders, and not long after the CME bought out the CME. With those great numbers, the CME couldn’t help but publicize the event, with a Q&A article on the CME’s website.

Naturally, this strengthens CME’s position to re-establish themselves as the global managed futures exchange. Plus, CME is going by the motto, “If can’t beat the competition, buy a smaller competitor and use them to supplement your power. “  AKA Earlier this year, the CME invested capital into the DME in hopes of establishing the Oman crude oil futures contract (which is the primary contract for the Middle East and Asia).

The CME is clearing the business so they want it to grow. Plus the contract is tied to a separate production pool so it won’t necessarily take away from WTI unless the major oil industry players decide that DME is a better benchmark for crude than the CME.

As for the CME and ICE showdown, here’s an updated chart as to where they stand midway through the year.

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

A Tectonic Shift in the Making: ICE vs CME

The CME’s mergers/purchases of the CBOT and NYMEX went a long way toward cementing their role as the world’s primary exchange for a variety of futures contracts – especially grains, livestock, and energies. Their importance in the global oil industry was bolstered by the fact that WTI crude, which is primarily traded on the CME’s exchanges, was the preferred global standard for oil futures trading. But nothing’s static in the futures world, and the CME’s grasp isn’t looking quite so cemented these days. A Dow Jones Business News article reports:

In April, monthly trading volume in West Texas Intermediate crude-oil futures traded on CME’s New York Mercantile Exchange was overtaken by the Brent oil futures offered by ICE. Now, analysts believe, open interest on the Brent contract–a closely-watched measure of trading activity and market liquidity–is set to overtake WTI, based on the recent trajectory of market activity.

Being home to the most-traded oil contract is important to exchanges like CME and ICE because traders gravitate to the most-liquid markets. Capturing the crude crown would be a boost for London, whose commodity-trading profile has increasingly come under threat from traders shifting to Geneva, partly for tax reasons.

The success of ICE in the oil-futures market is viewed as a sign of the threat it poses to CME overseas. ICE has been buoyed by the prospect of buying NYSE and its prized London-based Liffe derivatives unit, just as CME prepares its own long-awaited push into Europe.

Part of this is driven by the market itself – WTI hasn’t been quite as useful an indicator of global oil prices due to a prolonged supply glut in Cushing, OK. The two tracked each other very closely up until late 2010, at which point the consistently lower price of WTI took hold:

Disclaimer: past performance is not necessarily indicative of future results.

And as more traders begin to view Brent as a better reflection of the global oil market, ICE benefits due to their larger share of the Brent trade.

This is just another volley in the growing global competition for futures volume, and ICE’s intention to purchase of NYSE Euronext (announced in December) may soon become a reality, as well. That move is awaiting only regulatory approval, and would be a huge boost to ICE’s ability to compete with the CME.

This is an industry where scale is incredibly self-reinforcing; the biggest investors in the field seek the most liquid exchanges, which in turn makes those markets even larger (and more liquid). It’s a positive feedback loop that could spell trouble for the CME if they begin to fall behind.

Of course, the CME isn’t just sitting back and watching – they’re pursuing their own effort to expand into Europe, in the hopes of claiming a larger share of the currency futures market from ICE. And they remain unrivaled in the US… but that may not count as much as it once did. The flurry of mergers and purchases over the last decade has narrowed the field, raising the stakes for this battle for a bigger share of the world’s futures markets.