The 10 most read Managed Futures posts of 2013

Another year and another reflection back on the year that was.  Before we get too excited about 2014 and the endless possibilities, opportunities, and chances, we want to look back on the year that elected our CEO to the NFA board, the year we said goodbye to a turtle trader, and the year we suggested minting a billion dollar coin to the federal reserve. 2013 was anything but dull for Attain, and we wanted to review what you found the most interesting. Here’s the Top 10 list.

1. The Big Dogs of Physical Commodity Trading

Those of us in managed futures live in a world full of contracts, rules, regulations, and hardly a physical commodity in sight during trades. But there’s an underbelly to all of that activity called physical commodity trading that sometimes gets overlooked by those of us who merely trade the derivatives of all that oil, grains, and what not. And it’s HUGE. The 2012 combined annual revenue of their Top 10 comes out to be $1.3 Trillion (yes that’s trillion with a capital T).  But these names are hardly the household names of other billion dollar businesses like UPS or IBM or the like.

2. “No, Bloomberg, the managed futures industry is not a scam

We’re very pleased to see this article in the top 5 posts of 2013, considering it has only been published for 2 months. In early October, Bloomberg, befuddling to us, released a rancid article in which if you’re thoroughly educated about managed futures, and the full fee structure, makes the industry appear as though it’s a legal way to take peoples live savings. We’re not those people. Posting it on our blog wasn’t enough. Our “smackback” was also covered on FT Alphaville, as well as CTA Intelligence. Even though this blog post has reached thousands of readers, the Bloomberg article still gets republished by different media sources, citing slightly different statistics. It’s a long read, we know, but it’s worth your time. Trust us.

3. “Liz Cheval: From Turtle to Titan

With a heavy heart, we learned that legend, Liz Cheval, died of an aneurysm in March. Although this post is from 2011, we would only hope that this tragic event has brought attention to the influence she had on the industry, and breaking through the glass ceiling spearheading a career path for women of the next generation in this industry.

4. “Sortino Ratio: Are you calculating it wrong?

This article garnered much attention with the managed futures industry, even a response from proclaimed founder of the ratio itself. Red Rock Capital suggests the real definition of the Sortino ratio uses not the standard deviation of negative returns, but instead the ‘target downside deviation’, which is the deviations of the realized return’s underperformance from the target return.  What does that mean to the normal person who has trouble reading math equations?

5. “Mint that Coin

This post is almost a year old, but it’s as relevant as ever. As if anyone could ever forget, the government shutdown in October and the debt ceiling debate dominated media coverage in October. This article though is from the last fiscal cliff debate, not 10 months before the one in October, with the idea of minting a trillion dollar platinum coin so the president wouldn’t need congressional approval to raise the debt ceiling. It’s really quite interesting, as farfetched, and hypothetical as it is. But as we later found out this year, the Obama administration took it more seriously than we and anyone else thought. Got love those freedom of information acts.

6. “What Everybody Ought to Know about Managed Futures Asset Class Growth

It’s no secret that asset growth in managed futures has grown exponentially since 2008 and its crisis period performance. However, the number most used is BarclayHedge’s databse includes Bridgewater, the largest hedge fund in the world. Although they dabble in managed futures, we wouldn’t consider them to be in the same category as other CTA’s. We take them out of the picture to get a better representation.

7. “The Surprising Connection that the Worst Performing ETF’s Share

Upon surfing the interwebs  for useful financial commentary and statistics, we stumbled upon the Worst 10 ETF performer’s YTD from Index Universe… and can you guess what most of them have in common? Gold.  As if that was much of a surprise, but -56% YTD performance is just brutal. Five of the ten worst performers in 2013 are Gold ETF’s (4 of those Gold Miners ETF’s which we’ve discussed before here), two are Silver ETF’s (which from a commodity standpoint is highly correlated to gold), with the remaining three short VIX ETF’s.

8. “It Takes Two to Contango

Crude Oil is a dominant market when it comes to content in the futures industry, and this year was no different. While the energy market tends to display what we in the biz call “Contango,” Crude Oil displayed highest level of Backwardation (reverse Contango, if you will) in more than 15 years.

9. “Take a Look: Averaging 48k Monthly Managed Futures Returns

What does the average CTA look like? This great question was brought to us by a prospective client, and while it seems simple on the face of it, the question is actually a bit more complex, and worth a detailed explanation. This got us thinking of the question a different way that our database can understand: what is the average monthly performance, gain, loss, drawdown amount, and so forth across all CTAs. Without further ado, here’s the stats on over 48,698 monthly returns for 2,603 CTA programs going back to 1977.

10. “The ‘Problem’ with Liquid Alternative – in one nice Table

Adding ‘alternatives’ to your portfolio has never been as easy as today with the plethora of so called ‘liquid alternatives’, or mutual funds specializing in alternative investments such as managed futures. And the marketers have never had such an easy time separating the naive from their money in their bids to raise money for these funds. Enter an old five-pager by the Principal Group we dug up which explains how to utilize 15 different hedge fund strategies in portfolio construction. It has all you would ever need to know about these highly complex investments, dedicating 4 to 6 sentences to each one! Are you picking up the sarcasm?

Managed Futures Linkfest

Managed Futures and Manager Mentions:

Industry News/Regulation affecting Managed Futures:

  • Extreme Makeover: Gary DeWaal Says FCM Landscape has to Change – (John Lothian News)
  • Banking Under Dodd-Frank Takes Shape With Volcker-Rule Approval – (Bloomberg)
  • NIBA Reports on Meeting With CME Group – (Dan Collins Report)
  • CME data fee increase more onerous than originally thought – (Futures Magazine)

Market moves, stories, and other items of note to Managed Futures:

  • Speculators Hold Smallest Bullish Gold Positions Ever In One CFTC Report – (Forbes)

The Surprising Connection That The Worst Performing ETF’s Share

When is enough, enough? That’s the question you might be repeating to yourself if you’re a Gold Bull (physical, futures, or otherwise). Or maybe, that’s what you might be thinking if you’re invested in a long Gold ETF. Upon surfing the interwebs for useful financial commentary and statistics, we stumbled upon the Worst 10 ETF performer’s YTD from Index Universe… and can you guess what most of them have in common?

Worst 10 ETF's YTD(Disclaimer: Past performance is not necessarily indicative of future results)
Table Courtesy: Index Universe

Five of the ten worst performers in 2013 are Gold ETF’s (4 of those Gold Miners ETF’s which we’ve discussed before here), two are Silver ETF’s (which from a commodity standpoint is highly correlated to gold), with the remaining three short VIX ETF’s. The range of the top ten was in between -43% and -56%. Ouch. Hopefully, most of those investors got out before Gold started turning bear, but there have to be some investors in the ETF, or well… it wouldn’t exist.

On the futures side of things… Gold has consistently dropped more than -26% since the start of 2013 (Disclaimer: past performance is not necessarily indicative of future results). That’s nothing to shrug off… but if you’re a frequent reader of our blog, you would know that the managed futures world isn’t concerned with a falling or rising gold futures, because trend following has the ability to go both long and short, and -26% performance over almost a year is definitely a short trend.

Moreover, while the benefits of passive indexing for equity etfs are well documented, it is our belief that investors are much better served getting commodities exposure through an actively managed CTA product (aka trend following) then a simple buy and hold approach…the scary numbers above are exhibit 1A. Plus ETF products  like USO and UNG that are tied to futures markets rather than actual physical commodities are even worse off as they have the potential to lose (due to the cost of rolling futures positions) even when the markets are moving favorably aka higher.

We’d like to point out it may appear we are harping on ETF’s the past couple of days with our latest post, “Nobody ever lost money in a Spreadsheet.” We don’t dislike ETF’s…  and it would only be fair to show the Top Ten ETF’s of 2013.

Top Ten ETF's YTD
(Disclaimer: Past performance is not necessarily indicative of future results)
Table Courtesy: Index Universe

Managed Futures Linkfest

In this week’s edition of Managed Futures Linkfest, the rebuttals/responses to Bloomberg bashing of Managed Futures are still flowing, David Harding on Winton talks Market Momentum with his lovely British accent, and an update on AlphaMetrix.

  • Futures under Fire – (The Dan Collins Report)
  • Cliff Asness: Leverage. Derivatives. Shorting. – (WealthTrack)
  • AlphaMetrix ordered to repay managers on its managed account platform – (Pensions & Investments)
  • David Harding of Winton Capital Management, discusses how watching market momentum has been the best approach to market forecasting for over 25 years – (Businessweek)
  • Cattle prices reach new heights – (Agriculture)
  • Managed futures as an alternative portfolio anchor – (Investment News)
  • 3 Reasons Gold Could Scream Higher – (Daily Reckoning)

Managed Futures Linkfest:

A contrarian cornucopia of articles have popped up recently, and the only way to look at it in our opinion… is as the old ‘headline indicator’, or as Warren Buffet says – “be fearful when others are greedy, and greedy when others are fearful”. The headlines are definitely fearful of managed futures right now… is it time to be fearful?

Without further ado, Must See Managed Future Links.

  • The Big Smack Down from Bloomberg, unfortunately links all of managed futures with high fee Broker/Dealer sold managed futures funds  – (Bloomgberg)
  • Investors turn their backs on “robot” hedge funds — (Reuters)
  • REPORT: John Taylor’s Once-$14 Billion FX Concepts Hedge Fund May Shut Down – (Business Insider)

And some from the periphery…


Government Shutdown: No CFTC, but SEC stays open

If you’ve been living under a rock the past week, you might not know that the federal government is in day one of shutdown. If you’re on social media – you sure as heck know it’s happening what with the twitter/facebook/social media world exploding. Except of course the government tweeters (all social media accounts controlled by the government have stopped tweeting… talk about non-essential).

Here’s what it came down to: the GOP controlled House is still attempting to delay/defund/repeal The Affordable Care Act, better known as Obamacare 4 years after it was passed, and Democrats controlling the Senate refuse to repeal the law. Jon Stewart on the Daily Show had a good breakdown of it last night:

John Stewart Government Shutdown

While the media is abuzz on how this will affect your personal life, we’re left wondering how it’s going to play out in the futures markets?

From a regulatory standpoint, the CFTC is shut down (although an email was sent out to NFA members giving the cell phone numbers of four CFTC staff in case of emergency), meaning we’re not likely to see any FCM fines for a few days, while the NFA (a self regulatory organization) remains open for business.  The SEC remains open also, with  a spokesperson with the SEC saying they have enough left over funds to stay open during the shutdown.

Reaching past regulations of our industry, the New York Times has put together a list of federal employees who are allowed to work during the shutdown (fish hatchery employees being one group).

Interestingly enough, the biggest impact the shutdown could have on the markets is on livestock and dairy futures. The Wall Street Journal reports the CME may have to change or modify its settlement procedures because no one’s working over at the USDA…

“The October 2013 contracts for live cattle, lean hog, feeder cattle futures and options, as well as milk, butter, whey, cheese and nonfat dry milk futures and options for September 2013 could potentially be impacted by the lack of pricing information from the U.S. Department of Agriculture. The USDA is furloughing staff who produce numerous daily and weekly reports on cash prices for agricultural products as a result of the partial government shutdown that began Tuesday.

CME said some of its dairy and livestock futures contracts are cash settled at their expiration, based on USDA price data. A prolonged government shutdown, it said in a letter Tuesday to customers, “may require the exchange to modify the current settlement procedures” for the affected contracts.”

So there’s not need to panic just yet, but the possibility is there…

Luckily for the Ag commodities, the crop report was released yesterday, so there shouldn’t be much of a hiccup (unless this shutdown lasts longer than expected). However, investors relying on economic reports for their index futures aren’t so lucky. The new jobs report is supposed to be released this Friday, but the Associated Press reports the U.S. Labor Department has no plans to release the data during the shutdown.

As for immediate market reaction – it’s predictably unpredictable, as always, with stock indices up rather handily (+1% on average). Metals seem to be taking the brunt of the pain today, (Gold down -2.7%, Silver -4.24%, Copper -1.69% – past performance in not necessarily indicative of future results), leading Josh Brown to quip:

Reformed Broker Tweet

And all this may just be a prelude to the coming  Debt Ceiling debate in just a couple weeks. The worst case scenario would be the federal government still shutdown, yet somehow needing to figure out the debt ceiling at the same time!  Now, normally we would be cheering on the volatility – but the sort of whipsaw, hour by hour volatility that seems to come with these sorts of debates/votes usually isn’t kind to managed futures. What would be much better would be if this is the tip of the iceberg – creating longer term directional volatility (like a large 6 month move in bond prices, 3-4 month rally in the USD, etc.)

P.S. – There was one other positive outcome from the shutdown… There was a hashtag created for Government shutdown pick up lines


Goldfinger, Gold iPhone, and Gold Backwardation!

Our society hasn’t lost its obsession with that shinny medal just yet. Despite Gold down –31% from its high, and down –18% for the year, Gold keeps popping up everywhere we look:

First, there was Apple announcing its next phone will be available in Gold (the color, not the metal, we think)

Gold Iphone
Photo Courtesy: USA Today

Then there was a great piece on Slate’s Blog MoneyBox delving into the economic and political undertones of the famous James Bond Classic: Goldfinger. Was this a classic Bond film with the ejector seat car, or a movie about the Bretton-Woods system of semi-fixed exchange rates restricting British citizens from buying and storing large quantities of gold. The piece draws some eerie parallels with today, noting that Labour Party Prime Minister Harold Wilson:

“As an alternative to devaluation, [Wilson] tried to rebalance the current account with a program of fiscal austerity. This merely put more pressure on the domestic economy and did not stop Britain from running a trade deficit that continued to leech the country’s gold reserves and eventually forced a devaluation in 1967.”


Photo Courtesy: James Bond Wikipedia 

We’ll prefer to remember Goldfinger for the Aston Martin DB5, henchman OddJob, and perhaps the most deliberate use of the double entendre in Bond Girl names; but it’s nice to know there was more to the back story for the movie than just a man who loved Gold.

Finally – there was the following tidbit on Zerohedge recently showing Gold moving into Backwardation where the near price is worth more than distance contracts. This is proof of a conspiracy in the physical Gold world for Zerohedge – where more than a few posts of theirs allege there isn’t enough physical Gold supply to meet all of the Gold investments based on such supply, but we’ll just chalk it up to an interesting move:

Gold Backwardation

Source:  Zerohedge