In at the Highs, Out at the Lows

Do you learn from your mistakes? Do your neighbors, colleagues, or the rest of society? It seems that the answer is usually no; and especially no when it comes to the toxic investment cycle of getting in at the highs and out at the lows. We see time after time that this dangerous cycle transcends asset classes, market environments, and Fed chairperson.  We’ve talked before about the dangers of the emotional investment cycle, and after getting the last of the 2014 data on asset flows – we can see Managed futures is the latest case study. Just take a look at the performance of Managed Futures when asset flows are overlaid onto the chart.

Managed Futures Performance vs asset flow(Disclaimer: Past performance is not necessarily indicative of future results)
Source: Barclayhedge CTA Index

People could not have been much more wrong, with outflows of -$63 Billion over the two years ending June 2014, right before managed futures went on to rip off average index gains of +12.32% in the next 6 months. Now granted, those folks who bailed for the exits were looking at being down over the preceding three year period. But it’s not like we’re talking the internet bubble burst. The indices we down about –4.09% over that same time span (July 12 – June 2014). And it’s not like someone didn’t cue Wilson Phillips and say we were at a generational low.

The more troubling sign is that the people didn’t just get in at the bottom – a lot of money got in at the top as well, having poured $44 Billion into managed futures following gains of $7.56% between Jul 2010 and April 2011. What does this mean for the rest of 2015, where money should be flowing into the asset class following an impressive year?  Only time will tell, but we’ve got a feeling this isn’t quite performance chasing at this point. Wait until managed futures puts in a good two to three year stretch – then you’ll see the hot money running for the asset class…. just in time to suffer through a down to flat period.

Meanwhile, those who’ve been invested in managed futures for 10 years or more must just sit back and laugh at the flows in and out, knowing what they know – that it is a mutli-year investment which rewards investors for patience. They know that managed futures is much different than a typical stock market investment. The stock market sees consistent gains interspersed with periods of sheer terror. Managed Futures, in contrast, is consistent frustration/boredom, interspersed with periods of elation when big market trends emerge.

PS –  How big is the Managed futures industry, really? This is something we get into now and again, and just this week MorningStar reported that investors have seen the light, putting $1.4 Billion in Managed Futures Mutual Funds in the first two months of 2015. Now, Mornigstar just tracks mutual funds… not the overall space including managed accounts and privately offered funds. For that, we turn to BarclayHedge, who’s been tracking managed futures assets for 20+ years, and come up with total assets under management by managed futures firms at  $316.8 Billion.

There’s just one little problem, those numbers include the world’s largest hedge fund ($220 Billion Bridgewater).  And they include Winton. Now, we agree that Winton should be included, even if David Harding dropped an ‘f bomb’ in the Financial Times claiming they’re not a Managed Futures firm, just weeks before winning the Managed Futures Pinnacle Award last year.

For those who might want to see what the industry is looking like without Winton & Bridgewater inflating the numbers, here’s our try and stripping them out. While that downward sloping curve may send some of you running for the hills, this is exactly the sort of dis-interest those looking to get out of the toxic ‘in at the highs, out at the lows’ cycle should welcome.

Asset Flows of Managed Futures ex bridgewater winton(Disclaimer: Past performance is not necessarily indicative of future results)
Source: Barclayhedge CTA Index

DISCLAIMER: The stats herein discuss the growth of assets under management both from new money invested and gains/losses on past money invested. It is not intended to portray performance of the asset class.

 

Alternative Links: Winton’s Milestone

Winton:

David Harding’s Winton Capital Passes $30 Billion for First Time – (Bloomberg)

Our Interview with David Harding – (Attains Alternatives Blog)

Managed Futures & Currencies:

The Almighty U.S. Dollar – (MorningStar)

Long the U.S. Dollar and Loving It – (Attains Alternatives Blog)

A Look a the Euro by the Numbers – (Attains Alternatives Blog)

Managed Futures Predictions:

5 Predictions for Managed Futures post 2014 – (CTA Intelligence)

Managed Futures 2014 Review & 2015 Outlook – (Attains Alternatives Blog)

Proprietary Trading:

Proprietary trading: truth and fiction – (Peter Muller)

Diversification:

Diversification Means Always Having to Say You’re Sorry – (The Investor’s Paradox)

Diversification Sucks – (Attains Alternatives Blog)

Commodities:

Commodities – Time To Start Reloading – (ValueWalk)

WHY IT’S A BOOM TIME FOR PALM OIL: INTERVIEW WITH CHONG KIM SENG – (Open Markets)

Robo-Advisors:

Broken Values & Bottom Lines – (Medium)

Alternatives:

Vanguard tiptoes into the liquid alternatives market – (Investment News)

Attain Funds February Performance

Well, there goes our perfect game.  After 6 plus months of collective gains for the Attain Family of Funds, and a great start to the year – each of our managed futures funds posted small losses in February. The good news, three of four funds still remain positive on the year. The market consolidation in commodities, currencies, and fixed income were the main culprits for the down month, with months long trends slowing down.

For more information of the Attain Funds, click here.

FundFebruary*YTDAnn DD 2015
Attain Global Macro Fund-0.97%+7.92%-0.97%
Attain Trend Following Fund-1.49%-0.92% -1.49%
Attain Short Term Alpha Fund-1.55%+6.29% -1.55%
Attain Relative Value Fund-1.91%+0.65%-1.91%
Liquid Alternative Comparisons
AQR Managed Futures Strategy I Mutual Fund (AQMIX)-0.81%+3.95%-0.81%
361 Managed Futures Strategy A Mutual Fund (AMFQX)-0.09%+3.24%-0.09%
Managed Futures Mutual Funds-0.14%+3.77%-0.14%

Disclaimer: Past performance is not necessarily indicative of future results

Managed Futures Mutual Funds = The Morningstar Managed Futures Category Performance, showing an average of all Managed Futures mutual funds on their platform. Performance as of February 27th, 2015.

Annual DD = The worst drawdown experienced by the strategy for the calendar year.

Disclaimer:  *The return numbers herein include estimates of the full month performance for the previous month, and include assumptions for accrued fees, the effect of additions and redemptions, and other factors which may cause the final numbers compiled by the fund administrator to differ slightly.

You should fully understand the risks associated with trading futures, options and retail off-exchange foreign currency transactions (“Forex”) before making any trades. Trading futures, options, and Forex involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more than your initial investment. Opinions, market data, and recommendations are subject to change without notice. Past performance is not necessarily indicative of future results. Commodity Futures Trading Commission (CFTC) rules require delivery of a disclosure document at or prior to the time an advisory or subscription agreement is delivered. The disclosure document includes the principal risk factors and costs of participating in a particular CTA or CPO program including the potential impact of fees and expenses, the “break-even point” expressed both as a dollar amount and as a percentage return necessary to recover one’s initial investment, if applicable. The CFTC has not passed upon the merits of participating in any one particular investment or on the adequacy or accuracy of any one disclosure document.

Asset Class Scoreboard Two Months In

In a “business as usual” market environment with new all time highs in the stock market indices over the past year, it’s fun to play the game, which asset class has done the best since the beginning of the year or over the past twelve months. You might be surprised as to who’s on top and who’s not.

Asset Class Scoreboard Table Feb 2015Asset Class Scoreboard Chart(Disclaimer: past performance is not necessarily indicative of future results.)
Source: All ETF performance data from Morningstar.com
Sources: Managed Futures = Newedge CTA Index, Cash = 13 week T-Bill rate,
Bonds = Vanguard Total Bond Market ETF (BND),
Hedge Funds= IQ Hedge Multi-Strategy (QAI)
Commodities = iShares GSCI ETF (GSG);
Real Estate = iShares DJ Real Estate ETF (IYR);
World Stocks = iShares MSCI ACWI ex US Index Fund ETF (ACWX);
US Stocks = SPDR S&P 500 ETF (SPY)

Managed Futures Rankings

We doubt anyone is staying up all night waiting to see who made it into our semi-annual rankings the way they watched  Doogie Howser dishing out awards in his underwear; but we do take this stuff seriously around here, and are excited to announce we just finished calculating our latest Semi-Annual Managed Futures Rankings, updated through January 2015. The rankings are something we do every 6 months in pursuit of answering that eternally difficult question to answer: “What’s the BEST managed futures program?”

2015 Badge

Who’s the best is a tricky question? Do you mean: Best last year? Best for all time? Best risk adjusted return? Best in terms of lowest drawdowns?

We’ve dedicated extensive resources over the years to analyzing and testing a rankings system that would best reflect what we believe to be the important metrics for measuring skill in this investment space. Our rankings start by filtering the BarclayHedge database to a smaller subset of managers which have at least 36 months of track record, are registered with the NFA, offer managed accounts, and are viable business concerns (no prop trading records for example).

Overall, there are 8 separate categories, from best programs with risk adjusted performance, best reward managers, as well as best on our Attain Focus list. Click here to download the report and see who made it. There’s many newcomers after a banner year for managed futures in 2014, while many familiar names continue to dot the rankings as they have done report after report for years. Enjoy! And don’t forget to pick up the phone and dial our team with any questions on the who, what, when, and why behind all of the managers listed.