YTD Asset Class Scoreboard

No matter which asset class you track on a regular basis, March was a month of little activity around the board, with none of the asset classes we track posting a return above 1% or below -1% {Past performance is not necessarily indicative of future results}. At of the end of March, Managed Futures was the only asset class in the red… which reminds us all why “Value Investing” is so hard.

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

Asset Class Scorboard Chart(Disclaimer: past performance is not necessarily indicative of future results.)
Source: All ETF performance data from
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)

Performance of 40 Futures Markets after Q1

Commodities continue to grab headlines this year, as stocks have took a tumble in April, forcing many to question whether 2014 is the year of “Commodity Sex Appeal?” We’re a little bit past the first quarter of the year, and there’s reason to believe in the appeal by the amount of green shimmering below.

Futures Market Performance(Disclaimer: Past performance is not necessarily indicative of future results)
Chart Courtesy:

Here’s some of our thoughts:

  • 31 out of 40 Futures markets are positive thus far this year. That’s an impressive 75 percent, compared to a 50/50 split from all of last year.
  • Softs & Ag markets are by in far outperforming other markets, holding the top 11 positions, while last year’s high performers, futures stock indices are in the red, or close to it.
  • The so called “Dr. Copper” which many believe to be a predictor of turning points in economics, is the only metal down on the year.
  • Not that it’s a shock by now, but Coffee remains to hold an unbelievable up trend, now standing at 78% YTD. Here’s Coffee by the numbers.
  • The nasty hog virus sweeping the nation is causing a lack of supply, having a rippling effect on the Lean Hogs market.
  • Natural Gas has all but erased its multiple instances of volatility explosion, while the Crude Oil Market is getting boring.
  • As the situation in Ukraine continues, the Corn and Wheat markets could be impacted.

What’s in store for the rest of the year? Are Coffee and Lean Hogs done with their uptrend? Will the Ag Markets be one of the top performers list for the full year? Are stocks going through a “correction” phase, or is the bull cycle over?

From a managed futures perspective, CTAs don’t care about the headlines, the hype; they don’t even care if Commodities themselves are up or down. All they care about is a consistent prolonged trend in either direction. Although we will say the nice thing about up trends is there is no cap on how high they can go (in theory). In comparison short trades have a natural floor (cost of production) and can never go below zero.

From a more broad perspective, after last weeks fall in stocks, we can only guess that there were more than a couple investors searching “Alternate Investment Opportunities.” So is it time to Google Alternative Investments, or is this just a blip before the stock market run continues? For those of you who think stocks will have another repeat year, ignore the last part. For those of you who might consider protecting your portfolio, do your due diligence about what alternative investments are out there, and what their return drivers are before taking your next step.


Managed Futures Q1 Performance: Get in the Game

We’re a quarter way through 2014, and Managed Futures as a whole has yet to kick its performance into gear. Out of the four managed futures indices we track, the average performance for the month of March came out at -0.57%, putting the average Q1 performance at -1.80% {past performance is not necessarily indicative of future results}.

Managed Futures March Performance(Disclaimer: past performance is not necessarily indicative of future results)

While Commodities as a whole are on the rise in 2014, a lot of markets experienced a reversal in trends in March; including Coffee, Sugar, Wheat, and Gold. Meanwhile, the energies markets were choppy, while on the flipside, Lean Hogs continued its upward trend. We need more trends like in Lean Hogs, and less reversals like seen in stock indices and bonds, to erase the red off the board. That’s not to say individual programs can’t outshine the asset class over any one period, see here.

Lackluster performance towards the beginning of the year is nothing new for managed futures, with the asset class known for a history of strong 2nd half performance, but we sure could use that kicking in earlier this year.

Risk On/Risk Off Shutting Off

There’s no doubt Commodities are receiving more attention this year than years past, and it’s because of breakouts in Natural Gas, Coffee, Cattle, Lean Hogs, Sugar, Wheat, and Corn. Now some of the these trends have reversed course, not allowing long term trend followers to fully capitalize – but we’ve seen markets moving on their own fundamentals, not based solely on the Fed Minutes or view on the economy (what became known as the risk on/risk off environment back in 2009/2010).

There haven’t been too many Risk On/ Risk Off days to speak of in 2014, with just 1 ‘risk on’ day in both February and March. We define risk on as an average gain of over 1% for “risk” assets; risk off is an average loss of over -1% for “risk” assets. (Click here for a more detailed breakdown.)

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

This is no doubt another sign that the ‘recovery’ is in full force, with markets dancing to their own beat instead of following equities higher or lower on big moves. But it also could be a sign of further compression in volatility and a pending volatility spike – no chart goes/stays down like this forever.

Overall, Global Macro and Managed Futures strategies should be enjoying this move away from the risk on/risk off environment- as markets moving  in different directions/amounts at different times allows for the benefit of market/sector diversification such strategies rely on for risk control. Now if they could just stay in whatever direction their independently moving for a little bit longer – we could capture some nice trends.

What a Hedge Fund Failure Looks like:

The twittersphere couldn’t get enough of the news last week that hedge fund legend Paul Tudor Jones was shutting down one of his eponymous funds, the Tudor Tensor Fund (try saying Tudor Tensor ten times fast).

And critics of hedge funds will jump to the conclusion that it’s a dangerous world out there among alternative investments, and investors need to be careful because even a legend like Paul Tudor Jones can’t make money, having to shut down his futures fund.  Some will throw around the term survivorship bias too, concluding that the indices composed of hedge fund returns won’t include this program moving forward as a way of saying the index over reports the performance of the asset class – never mind that the program is shutting down, that the Dow no longer includes buggy whip companies, either – or that the index still includes the past performance of the shuttered fund.

But just how bad was the Tensor performance that they decided to shut the fund down?  What does a hedge fund ‘failure’ actually look like? The answer is, not that bad… Here’s a snapshot of just how the Tensor Fund has performed since inception, having returned a total of 42% over that time after running up 77%, then drawing down -20% over the last three years.

Tudor Tensor Vami_1 (Vami growth of 1,000; Disclaimer: Past performance is not necessarily indicative of future results)

The relative performance wasn’t all that bad either, with Tensor outpacing their benchmark (managed futures) as well as the markets they track (commodities) as well as a few little known asset classes called Bonds and World Stocks.

Tudor Tendor Asset Class(Disclaimer: Past performance is not necessarily indicative of future results)
Performance from Inception of Tudor Tensor Program (Sept. 2005)
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)

The real story here isn’t really how this program performed or that Paul Tudor Jones can’t cut it in managed futures, the real story is the business side of the hedge fund business. I have no doubt that Tudor and their team believe this program will perform over the long-term and that this point likely marks a low for the model. But big hedge funds like Tudor know how the asset gathering game works.

The Tensor Fund went from over $1 Billion ($1.5 per our numbers) down to just $120 million times over the last three years, and that is the reason the fund is closing, not anything to really do with performance, the skill of the manager, or expertise of the team. The closing of Tensor is more of a commentary on investors buying in at the top of a cycle and getting out at the bottom than anything else.

Here’s a picture of the Tensor equity curve with the assets raised – green money coming in, red money going out – overlaid (using a simple formula of growth in AUM less the performance multiplied by last month’s AUM to arrive at an estimate of how much of the growth in AUM was from performance verses from asset raising).  You can see that the largest concentration of money came into the program (over 34% of all the money raised) just as it had made new equity highs and was poised to begin a (rather normal) drawdown period.

Getting in During the Highs_1
(Vami growth of 1,000; Disclaimer: Past performance is not necessarily indicative of future results)

The real story is that nearly $700 million came flying into the fund on 4 years of good performance and the Tudor name almost exactly at the wrong time. The real story is the same story we’ve heard a million time and see play out again and again with mutual fund flows and the rest – investor’s getting in at the top, and out at the bottom.  This is nothing new to those in the investment industry – and goes to show that even a hedge fund ‘brand name’ like Tudor isn’t immune from performance chasing.

As for the business side of things – the bottom line for a multi-billion shop like Tudor is that a $100 million fund is simply not worth the time and effort to keep going, no matter how well they think it will perform moving forward. The playbook on the business side of hedge funds is to shut this one down, and move on to the next project.

Finding the Next Dayton for Your Portfolio

As the Sweet 16 games get underway tonight, it’s the just about the time where we see who made their NCAA picks based on favorite mascot, who picked based off of favorite/disliked teams, and who tried to pick by statistics. There’s no other statistician out there that knows how to use his ability to appeal to the masses like, Five Thirty Eight’s, Nate Silver.

At the beginning of the tournament he came out with the probabilities of each team advancing to the next round (original stats here), and he would update the numbers as the tournament went on (current predications). At the beginning of the tournament, Dayton had a 24% chance of beating in state rival Ohio State rival, and if you’re familiar with Ohio sports culture, that was a very meaningful game, with the Dayton Daily News poking some deserved fun at those NFL players from Ohio St. who like to announce their school during Monday Night Football as ‘THE’ Ohio State:

The University of DaytonPhoto Courtesy: The Dayton Daily News

But Dayton’s chances got even smaller to advance to the Sweet 16, with only a 7% chance, according to Silver’s original stats. But Dayton must have been emboding the words of Dumb and Dumber’s famous quip, “So you’re saying there’s a chance.” In fact, Dayton did beat Syracuse in the 3rd round, and this is what happened.

President Dayton

Now, Dayton is slated to be the underdog for the third time in a row tonight – taking on #10 seed Stanford to see who advances to the Elite 8. Before the tournament started, Dayton’s chances at an Elite 8 run were 2.28%, and that now stands at a 50% chance! Surprising what a little success does for your odds.

So who do you usually pick for your portfolio – the Duke’s of the investment world, or the Dayton’s? Do you play it safe and go with the best record and highest seed? Or try and uncover talented teams which have flown under the radar but are ready for a big upset (we actually did a Managed Futures Bracket for those who want to find some underdogs).

Consider the following two charts of managed futures programs since their inception to December 2008:

The #1 Seed Man AHL:                                        The #11 Seed M6 Capital:

Man AHL InceptionM6 Capital

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

Who would you have picked for your investment bracket? The decade long track record, billions under management, 900%+ return, and brand name of the #1 seed? Or the three year track record, 40% return, millions under management #11 seed?  Most investors go with the ‘safe’ pick. But how have these two seeds performed in the ‘tournament’ over the past 5 years? AHL is down -15.09%, while M6 is up 28.91% {past performance is not necessarily indicative of future results}.  Only a very small fraction of investors chose the #11 seed over perennial favorite Man AHL back in 2008, but managed futures version of the march madness Cinderella didn’t listen to the hype or the investors voting with their checkbooks. They just kept practicing, kept working on their fundamentals, and got down to outperforming the orders of magnitude larger manager. David can beat Goliath every now and then.

So who’s an under the radar sleeper (investment) team right now, looking to pull off the upset over the next three to five years? We just happen to have a few good ideas on that, having studied the managed futures brackets day in and day out for the past 10 years. We think these five managers have just the right mix of seniors, ball handling, and coaching to upset the #1 seeds Winton, Transtrend, and the like…

- Emil Van Essen

- M6 

- Covenant 

- Integrated

- Eco


Top 10 Managed Futures Managers of February

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.

 (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 in February
Feb. ROR
Max DD
Min Invst.
AIS Capital Management -- 3X-6X (QEP)18.71%-89.67%$5,000,000
JKI - Futures -- Etiron 15.86%-37.28%$1,000,000
Quality Capital Management -- Enhanced (QEP)13.02%-77.25%$5,000,000
Keck Capital Management -- (QEP)11.91%-28.98%$2,000,000
Cordova Capital Management -- Trend Following (QEP)11.90%-20.69%$250,000
Southwest Managed Investment -- Global Diversified11.38%-32.79%$200,000
Dorset Futures Corporation -- Emini11.08%-33.65%$100,000
QuantScape Asset Management -- Equity Index10.50%-9.36%$200,000
White River Group -- Diversified Options9.58%-40.97%$20,000
Dreiss Research Corp. (QEP)9.48%-51.44%$1,000,000