Alternative Links: The Brothers that Cornered the Silver Market

He (almost) Cornered the Silver Market:

RIP: Nelson Bunker Hunt – (Crossing Wall Street)

Nelson Bunker Hunt, 88, Oil Tycoon With a Texas-Size Presence, Dies—(New York Times)

The Man Who Would Corner Silver – (Futures Magazine)

Trend Following:

Look Who Decided to Show Up to the Party… — (Meb Faber)

Diversification:

4 Year-end Portfolio Moves – (Huff Post Money)

Liquid Alts:

Market volatility gives liquid alts first real test – (Investment News)

Bloomberg mentions WDTI as stormy weather ETF – (Bloomberg)

Under the Hood: Wisdom  Trees Managed Futures ETF – (Attain’s Alternatives Blog)

Risk Adjusted Ratios:

Don’t Over Rely on Historical Data to Forecast Future Returns – (AAII)

LSE:

LSE to launch intra-day auction in 2015 – (Financial Times)

Best Managed Futures Programs – September

While one month’s performance is no way to judge an investment that has 3 to 5 year cycles, a glance at who’s doing well in the different environments month to month can be a useful data point at times. Here’s the top managed futures performers (by return only) for the month gone by:

Note: These programs are not necessarily recommended by Attain. For a list with much more thought behind it – check our semi-annual rankings (updated July 2014).

 (Disclaimer: past performance is not necessarily indicative of future results. Programs listed consist of those with at least a 3 year track record tracked by Attain Capital Management for investment by clients via managed accounts and do not represent all available programs in the managed futures universe.  The Max DD represents the worst drawdown of all time for the listed programs).

Top 10 CTA's of September
September ROR
Max DD
Min. Invst.
Purple Valley Capital - Diversified30.68%-49.34%1,000,000
Paramount Capital (QEP)28.14%-57.77%100,000
Hawksbill Capital - Global Diversified (QEP)20.81%-62.98%5,000,000
Southwest - Global Diversified 20.12%-32.79%200,000
Mulvaney Capital - Global Markets (QEP)17.69%-45.02%10,000,000
Westphal Trading - Diversified 16.53%-26.10%500,000
Tactical Investment Management -- Instl. Comm. (QEP)16.30%-41.51%10,000,000
Revolution Capital - Mosaic (QEP)16.05%-53.34%10,000,000
Covenant Capital - Aggressive 15.59%-20.41%50,000
Kelly Angle - Genesis (QEP)14.49%-45.59%2,000,000

5 Thoughts on the Stock Market’s -7.5% Correction

  1. Why is ANYONE surprised?

This has been the most hated rally of all time, as quoted by Barry Ritholtz, The Wall Street Journal, and CNBC; with seemingly many more people doubting its ability to survive than actually participating. What’s more, this thing was getting very long in the tooth – 68 months and 197% off the March 2009 lows as The middle of September, and 17 months since the credit crisis losses were erased with a new all time high in March 2013.  Compare that with an average bull market move of 103% and 30 months off the lows, and 18% and 14 months from new highs to the eventual peak, and you can see we were due. It’s also worth noting we’re basically flat on the year after this “correction”… no gains, no losses. While hard to believe after the past few years – the stock market does have losing years. Let’s repeat that:  In distant times (like ancient 2011), there were entire 12 month periods where stocks didn’t end higher than they started a whole year ago… Quelle Horreur!

S&P Bull Run 1 (Disclaimer: Past performance is not necessarily indicative of future results)
Data of S&p 500

  1. Short Bonds if you dare…

We’ve also been due for interest rates to rise, and a lot of smart people have bet a lot of money on that happening (including one Bill Gross, whose wrongness there no doubt led to his eventual exit from Pimco). But this is the new widowmaker trade. They are carrying people out in bodybags from this one, as every head fake lower in bonds results in violent upswings.  Despite us being 6 years past the credit crisis – when everyone though rates would be going back up by now, 30 yr US Bonds have dropped from around 4% to nearly 3% this year, with bond futures prices shooting up about 7.5% in the past 20 trading sessions. There’s some programs killing it on this trade, but there’s also a lot of pain and debris left over from bonds once again moving higher (rates lower).

  1. Managed Futures have been waiting for this…

September was great for managed futures, and we’ve been cheering stocks to zero so far in October, because this type of environment is what managed futures lives for. It’s been a quiet few years of waiting for a volatility expansion like this for managed futures strategies, most of which essentially bet on outlier moves like this one happening, not just in stocks, but in bonds and currencies, and the rest. The ability to be able to go long and short – combined with the ability to be in markets like bonds, wheat, and even stock indices – means these types of moves can be captured. Now, there are likely to be whipsaws and the potential for lower volatility ahead… just like the stock market, volatility can’t keep rising day after day; but every manager we talk to is very excited about this new market environment.

  1. This is why you diversify

If this type of market move scares you – remember this is why you diversify; even when that strategy has been getting it’s ass kicked the last 5 years. Those who are diverisified and missed out getting the full return delivered by stocks the past few years realized that diversification isn’t in place for what is going on today, but for what may come tomorrow (tomorrow is here). They realized that the choice to diversify can mean accepting smaller positive returns today in return for smaller negative returns tomorrow.  At the end of the day – this isn’t just about the final return – it is about the journey as well. It’s about avoiding the swamps… as the Abraham Lincoln quote in the movie Lincoln illustrates:

“A compass, I learnt when I was surveying, it’ll… it’ll point you True North from where you’re standing, but it’s got no advice about the swamps and dessert and chasm that you’ll encounter along the way. If in pursuit of your destination, you plunge ahead, heedless of obstacles, and achieve nothing more than to sink in a swamp… What’s the use of knowing True North?”

Just owning stocks and hoping the market goes up indefinitely is akin to just plowing straight ahead with your Compass pointing North. We’ve landed in stock market swamp… You going to go through it, or diversify your way around it?

  1. This is proving time for Liquid Alts

There’s been a huge influx of mutual funds offering hedge fund like strategies such as long/short equity and market neutral, as well as managed futures mutual funds and ETFs that have come to market since 2008. This is the first real proving ground for those products, and the volatility and stock market losses should really start to separate the proverbial wheat from the chaff. It will be quite interesting to see who delivered on their glossy brochure promises and who didn’t when the dust settles.

 

 

 

 

Alternative Links: Buzz Words Edition. Charities, GMOs, and ETFs

Hype:

Alternative investments gain popularity with plan sponsors – (The Retirement Savings Challenge)

Have Managed Futures Funds Turned a Corner? – (Chief Investment Officer)

Are CTAs one another’s Competition? – (AI Source)

Shh…. Managed Futures post best quarter performance since 2008 – (Attain Alternatives Blog)

ETFs:

Say Hello to another Managed Futures ETF (FUTS) – (ETF)

Are Managed Futures ETFs for you? – (Wall Street Sector Selector)

Research:

Alternative routes into hedge funds: liquid alternatives and managed accounts – (Hedge Week)

Us Fund Services 2014 – (HedgeWeek)

Bizarre:

Non profits and charities have to register as CPO’s with CFTC? – (Wall Street Journal)

U.S. farmers latest to sue Syngenta over GMO corn rejected by China – (Reuters)

 

Asset Class Scoreboard YTD – Look Who’s Climbing

Somebody forgot to tell the eight assets classes we track that they are supposed to move in different directions based on different return drivers. They all moved down together in July, back up together in August, then back down together in September…. Except for a little asset class named Managed Futures, which (right on cue) broke away from the others to post positive performance for the month to complete its best quarter since 2008 to move up to the third best performing asset class YTD.  Download our “What is Managed Futures,” whitepaper if wondering how they’re able to zig while the stock market zags.

Elsewhere, down trends in Grains and Metals made a long only approach to commodities look less than great, with an almost -6% performance on the year; while Hedge funds have given back some of their gains on the year, and Real Estate remains on top despite being the worst performer of the month.

Asset Class Scoreboard

Asset 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 Tracker ETF (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)

 

Shhh… Managed Futures up 4.93% in Q3

Being in the managed futures biz, you might expect us to be leading a parade complete with marching band and tumbling coppers a’ la the opening scene of Austin Powers following a month like September, where two of the family of Attain Funds posted double digit returns, and the managed futures index was up 1.94% to finish the 3rd quarter up +4.93% (past performance is not necessarily indicative of future results)

Austin Powers

It’s so cliché that the underappreciated asset class people are pouring out of miraculously turns around… but cliché or not – that’s just what happened. The naysayers said Trend Following is dead, that it’s so bad John Henry quit and Paul Tudor Jones threw in the towel, and so on and so forth… but here we are nonetheless, up 4.65% over the past 2 months in the indices, and several programs we track doing quite a bit better than that (past performance is not necessarily indicative of future results).

But we’re not going to cue the parade, just yet. For one, this is just one quarter. Sure, it’s the best quarter we’ve seen out of managed futures since 2008, but it’s just one quarter nonetheless. Secondly, we find ourselves instead wanting to keep the good great September a little under wraps, in a sort of “don’t look at us, nothing to see here” sort of way (like we’re trying to get away with something).  Telling anybody who would listen that the managed futures drawdown was a great time to invest didn’t seem to work, with managed futures assets at multi-year lows; so maybe we’ll try keeping it secret for a while. Our little secret with those smart investors who stuck with managed futures during the down times.

Here’s the managed futures performance table for the year…

September Managed Futures Performance(Disclaimer: Past performance is not necessarily indicative of future results)

P.S. – Don’t be surprised if we do cue up the Austin Powers scene if managed futures manages to string a few of these together. Here’s to continued trendiness in the US Dollar and weakness in metals and grains.

P.P.S.- Be on the lookout for an upcoming post on Attain’s Family of Alternative Funds performance in September. To get monthly performance and research updates on the family of funds, sign up here.

 

 

 

 

Long the US Dollar… And Loving it

While hardly scientific, we tend to have a knack for highlighting a certain market move or environment on the blog, and that market or environment quickly reversing course upon our piece hitting the airwaves. It’s the futures market equivalent of the old contrarian magazine indicator.

The latest example looks to be the Currency Markets, where our talk of record low volatility at the beginning of the summer has given way to some of the most volatile currency market trading in recent memory, with the U.S. Dollar Index up around 6% in the past three months {past performance is not necessarily indicative of futures results} during what Bespoke Investment called  “The Best Quarter for the Dollar in Four Years,

Bespoke Long USD(Disclaimer: Past performance is not necessarily indicative of future results)
Chart Courtesy: Bespoke

If you do any currency trading or have actually exchanged currency in the past and are asking ‘the US Dollar versus what?’ – the US Dollar Index measures the dollar against six different currencies (and mainly the Euro), so a lot of what is happening here is reflective of the Dollar rallying against the Euro. But it’s not only the Euro that’s been selling off against the US Dollar. See if you can spot any downtrends [US Dollar up] in  the Canadian, Aussie, Yen, Pound, or Swiss Franc.

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

Now, to be fair… we did ask rhetorically (and wishfully) in our beginning of summer piece whether this was the calm before the storm? So we can’t quite say this was a contrarian move that caught us, or systematic traders, off guard.  In fact, this ‘storm’ is just the sort of volatility expansion systematic futures folks like to see. It’s directional volatility, meaning the market has become more volatile (is moving more day to day) AND is moving in generally the same direction (in the case of the US Dollar, up).

For a while there in 2011 and 2012, we were asking for more volatility without being specific enough and got some non-directional volatility (aka whipsaws), which doesn’t really help anybody out.  You can see the US Dollar “break out” of its past range in the gray shaded area in the chart above (and for the more technically inclined – the 50 day moving average cross over the 200 day moving average), and that is just the sort of move systematic multi sector traders like global macro, trend following, and managed futures plan for. They suffer all of that flat to slightly down performance in exchange for being able to capture moves like this.

So it’s no coincidence that the ‘best quarter for the dollar in 4 years’ coincides with the best managed futures performance in 4 years.  This is just the sort of move that managed futures programs are designed to capture.  It’s a heck of a move in its own right, but it represents so much more than that, for it actually means that multiple currency markets are trending. And what’s more – a trending Dollar can actually affect non currency markets as well. Remember that all those Gold, Corn, Oil, Cotton and other commodities are priced in US Dollars – so all else being equal – a rising US Dollar means a falling commodity priced in US Dollars.

As short term proof – we can see the Newedge CTA Index up 1.48% so far in September after gaining 3.94% in August, to put YTD performance at up +5.57%. (it’s almost like someone said this was a generational low in managed futures around this time last year). But we’re interested in more than just the latest example, and wanted to see just how good a trending US Dollar has been for managed futures over time. Turns out a trending US Dollar is one of THE best environments around for managed futures, at about 3.5 times the monthly return of periods when the US Dollar isn’t trending. (we considered the Dollar trending if its 14 period ADX reading was increasing from one month to the next, looking back to 1989).

Average Trending Days(Disclaimer: Past performance is not necessarily indicative of future results)
Data: Barclayhedge CTA Index starting in 11/’85

So keep  cutting interest rates and doing buybacks ECB.  And keep the Abenomic experiment going, BoJ. And keep growing US Economy – because we want to keep riding this US Dollar up trend (aka Euro, Yen, Pound down trend), although we may have just jinxed it with our contrarian magazine article powers.