Alternative Links: The Next 5 Years

Managed Futures in the Next Five Years – (Hedge Fund Intelligence)

Feature – Advisors that are ready for the bear market with alternatives – (Barrons)

Education:

Deconstructing Management Fees In Alternative Funds – (Forbes)

How to Think About ‘Alternative’ Investments (Managed Futures gets bad mention) – (WSJ)

Recognition:

NIBA Member of the Month: Attain Capital Management – (NIBA)

Futures and Miscellaneous

Speculators widen corn net short position-CFTC – (Reuters)

General insurance accounts increasing use of alt investments – (Hedge Week)

CME Group launches Eurodollar bundle futures and options – (Futures Magazine)

A Big List of Alternative Investment Folks on Twitter

Looks like this is sort of a thing now… saying here’s a list of 10, 50, 106 “must follows” on twitter, just as we’ve seen with Business Insider’s “106 Finance People You Have to Follow on Twitter”, BrightScope’s “25 Most Socially Influential Advisors”, and so forth.

twitter-logo (1)But there doesn’t seem to be a list we could find of alternative investment folks, and specifically those focused on commodities, managed futures, and global macro strategies. The more we dug into why that is… the more we found a big hole where all of the people in the alternative investment space should be… There just aren’t that many of the 1000s of commodity trading advisors out there sharing their views on twitter.

 

Come on guys… it’s 2014!!  Time to join the party and show the world just how smart, funny, sarcastic, and charismatic us futures folk can be.  Twitter isn’t about telling the world what you had for lunch like we all feared back in 2010. It’s the modern day business card. It’s a 24/7 virtual conference where you’re simultaneously talking with hundreds if not thousands of people – it’s the new frontier where wit wins! So go on over and sign up and start making us smarter… or at least making us laugh.

In the meantime, here’s our compilation of people and firms currently out there on twitter (in no particular order, despite the numbering)  providing the latest insight, humor, debate, and news on investments – especially the alternative kind:

  1. @AttainCapital – of course… it’s our list!

Managers

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YTD Asset Class Scoreboard

Well that was a lot of red in July, with all of the asset classes we track showing negative performance behind stock markets’ first losing month in the past six.  The big loser, commodities, which fell over 5% as energy markets sold off and the big sell off in grains through the month of July, making Commodities the only asset class negative on the year.

Table Asset Class JulyChart Asset Class July(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)

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)

Managed Futures July Performance

At first glance, this month’s performance appears to be a bit of a head scratcher, with three of the four indices we watch reporting negative performance for the month of July (thus far), despite a major down trend in grains, providing the best returns in years for many agriculture trading CTAs we track.

The reason is the indices are comprised mainly of the largest managers, who are generally trend followers and generally not very exposed to the grain markets. It just goes to show the diverse amount of strategies that represent the Managed Futures Industry, which in July was quite wondrous, or terribly frustrating, depending on whether the strategy type you were invested in caught the down move in grains.  Here’s the month by month performance of Managed Futures for 2014 thus far:

Managed Futures July Performance(Disclaimer: past performance is not necessarily indicative of future results)
(Only 23% of returns reported to the BarclayHedge CTA Index)

CNBC didn’t screw up their interview with Winton’s David Harding

If you haven’t noticed… Winton Capital’s CEO David Harding is taking the press by storm this summer. We’d like to think that our interview with Harding a little over a month ago was the start of it all. Or perhaps it was Harding receiving the Managed Futures Pinnacle Achievement Award. Or the simple fact that Winton is big for a hedge fund, and absolutely enormous for a managed futures manager (even though they technically don’t classify themselves as a CTA). Either way, since our interview, they’ve been featured in a Pensions & Investments article, and now… Mr. Harding’s in the one-on-one interview on CNBC found below. (Unfortunately, this isn’t CNBC’s first attempt at interviewing Harding…the first one was a train wreck).

This time around, we must say, CNBC chose the right person to interview Harding as Julia Chatterley came prepared to ask the right questions.

Here’s our takeaways:

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Even Bad Diversification Works

Last week, Business Insider unveiled the “Most Important Charts in the World.” If ever there was an outfit with a flair for the dramatic headline, that would be them…but there was one chart that caught our attention entitled, “Diversification Works.” It was from none other than Josh Brown at Ritholtz Wealth Management.

Diversification Works

(Disclaimer: Past performance is not necessarily indicative of future results)
Chart Courtesy: The Reformed Broker

Now if you asked a roomful of random investors what diversification in their portfolio meant to them, chances are all of them would have a slightly different answer. In this particular instance, Brown defines diversification as a portfolio including a 30% allocation to the S&P 500, 30% to foreign stocks, and 40% to bonds. We’ll give you the bonds, but pairing foreign stocks with US stocks doesn’t strike us as all that diversified.  Foreign stocks (MSCI ex US) have a correlation of 0.89 with US stocks over the past 10 years, for example.

And being managed futures folks, we couldn’t help but look at their chart and wonder… what if you had managed futures in the foreign stocks slot instead? Would diversification have “worked” then?

Here’s our chart swapping the 30% foreign stocks allocation with 30% managed futures, per the Newedge CTA Index.

Diversified with Managed Futures

(Disclaimer: Past performance is not necessarily indicative of future results)
(Diversified = 40% Barclays Bond Aggregate Index, 30%  Newedge CTA Index, and 30% SPY)

While Brown was bragging of the diversified portfolio regaining its peak 14 months before a stock-only portfolio, the portfolio containing managed futures regained its peak 35 months prior, or more than twice as fast!  How? Because 30% of the portfolio was positive during the 2008 crisis as managed futures became negatively correlated to stocks during the crisis.  Now that’s some diversification.

Some may concentrate on the far right hand side of both of these charts, where the stock-only portfolio has, after 7 years, eclipsed the total return of the diversified portfolio (whether diversified in other stocks or managed futures), and discount diversification as unimportant or even costly. You would have made more money not being diversified, but that’s not the point for those who want some protection.

The point, as Josh Brown points out, is to have shorter drawdowns. The point is to be able to regain a peak sooner. The point is to be able to not panic at the bottom.  And, of course, the point (for us) is that diversification can “work” even better when you aren’t diversifying with another form of stock market investment (foreign stocks), and instead gaining true diversification with different return drivers.

P.S. – Past Performance is Not Necessarily Indicative of Future Results. The chart should probably be titled – Diversification Worked (past tense), not works (present tense). We noticed a comment summing that up rather nicely, and ask the simple question: Will Simple Beat Complex in the Next 5 Years?

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