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CTA Spotlight: Pere Trading Group
August 18, 2008
We like to highlight programs in our periodic CTA spotlights which have either caught our eye thanks to impressive performance, or are programs which we believe our clients will be interested in due to a unique style of trading, manager background, or the like.
Well, this month’s CTA spotlight happens to score well on several fronts. For one, they have done very well in the performance category (up over 30% in just over a month since our last CTA Spotlight). Secondly, they are doing something completely different than other CTAs (short term trading S&P futures). And finally, the manager has a pedigree few other CTAs can match (having worked at Dunn Capital for 17 years)
This month’s CTA Spotlight is on the Pere Trading Group and their managed futures program, which has simply been on a tear this year – up over 70% - after posting gains of over 50% last year. (Past Performance is Not Necessarily Indicative of Future Results
Who is the Manager?
The President and founder of the aptly named Pere Trading Group, LLC is none other than David Pere of Palm City , Florida.
David has been in the futures business for over 20 years, having gotten started back in 1986. As he says, however, his real education and experience didn’t come until two years later when he went to work at long time commodity trading advisor - Dunn Capital Management, Inc.
For those who don’t know of Dunn Capital, they are pioneers in the managed futures (CTA) industry, having managed accounts since 1973; and are viewed by both clients and fellow CTAs as one of the most successful CTAs of all time (despite some poor performance over the past few years) if for nothing else their incredible longevity.
Mr. Pere says it was a true “honor” to work with not only Bill Dunn, but also Pierre Tullier, stating: “For 17 years I benefitted from Bill & Pierre’s wisdom and mentoring in every aspect of running a CTA – the back office, computer programming, research, trading, and more.”
After building this successful pedigree, Mr. Pere left Dunn Capital in 2005 after 17 years to pursue other interests, specifically music composition. But putting together bars of notes didn’t satisfy in the way putting together snippets of code for trading futures markets, and after several months “off”, David started researching again by looking for ways to take profits out of his favorite market, the S&P 500.
After perfecting the trading models and trading family money for a while, Mr. Pere decided to “go pro” and became a registered CTA in August of 2006, effectively launching the Pere Trading Group program.
When not testing his models or looking for improvements, David spends time with his wife of 19 years; whom he affectionately calls his “best friend”, and his 4 “fantastic” sons. They play all sports, according to David, especially snowboarding and skiing, basketball & hockey; and enjoy their music, with all six family members playing a musical instrument.
How Does the Program Work?
This section of our highlight was difficult to complete with the Pere program, as Mr. Pere is extremely cautious and guarded on the information he will reveal on how his program works. Many traders have this built in protectionism attitude, and while inconvenient for those who wish to know more – it can be understood that they are trying to protect their livelihood. Coca Cola doesn’t just publish their secret recipe, after all.
What we do know, from observation and discussions with the Pere Trading Group; is that the Pere Trading Program is a 100% technical, computer driven E-mini S&P 500 trading system. The program is quite short term in nature, with a typical trade lasting anywhere from 1 day to 2 weeks, and the average trade duration more like 4 days.
One unique component which many investors may not be used to, is that the program is always in the market; meaning it is always either in a long or short position and never “flat”. Each trade executed is a reversal from either short to long, or long to short with no bias in either direction.
The program uses a single model to generate its signals, calculating a desired position in the E-mini S&P 500 futures contract by analyzing minute by minute intra-day E-mini S&P 500 futures price changes in conjunction with longer daily price changes over a span of recent days. Orders are then placed in the market, and the market either hits the levels and the position is reversed, or prices continue on in the direction of the current trade.
The program works exclusively on the E-mini S&P futures contract, despite having been tested on many other markets and showing good testing across many other stock indices. This is by design, as Mr. Pere feels the S&P, with its wide daily ranges (in dollar terms) “provide more opportunities when looked at over a short time frame than most other markets; while the combination of volatility in the S&P and my knowledge of how the S&P performs poorly within a trend following system leads me to focus exclusively on the S&P (for now)”
While Pere states the Program performs best in a market environment in which stock market action seems “confused”, we would classify the trading as having a contrarian approach; selling into short term highs and buying short term lows. With such a contrarian model, the program is likely to do well as the market gyrates up and down. The larger the gyrations, the better Pere can do. Poor performance is likely when the market becomes less “confused” and exhibits directional trading patterns; but the base of Pere’s approach is a belief that the market spends more time in a state of confusion than any other state.
Finally, it is interesting to note that Mr. Pere genuinely feels that the program is not suitable for everyone, saying:
“When I designed the system I didn’t anticipated trading it for the public. I built it to trade family money and to suit my risk tolerance, which appears to be much higher than most investors. As such, it certainly doesn’t fit everybody’s. There are times when the market will make substantial moves against my position – Feb07, Jan08 and Apr08 for example. I know first hand that this can be very difficult to deal with. Drawdowns are never easy, but when it is in one market on one position it can be particularly painful to the investor. Any potential investor should be prepared for the inevitable equity swings in their account that will certainly occur and be willing to look at this short term trading system with a long term investment time horizon.”
We have been doing our due diligence on the Pere Trading Group for several months now, and like what we have seen enough to have added Pere to our recommended list in conjunction with this CTA Spotlight.
It is very hard to argue with the impressive performance, and David Pere’s pedigree is nearly unheard of for a program with just a $50,000 minimum (soon to be $100,000). On top of that, it offers great diversification to most portfolios with its short term slant and like of higher volatility. Finally, the Pere fee structure of 0% management fee is another plus, meaning you don’t pay Mr. Pere unless the program makes money.
Despite all of the plusses, however, we’ll repeat what David Pere says more often than not: that this CTA program is not for everyone. It is a volatile program which is trading just a single market with a single model. As such, it lacks the protection diversification offers in many other programs, and is most likely only suitable as an addition to a portfolio – not the core CTA investment of one’s portfolio due to its penchant for higher volatility.
What does this higher volatility look like? Consider that Pere's recent performance has not come without some downside volatility between month ends which doesn’t show up in the monthly performance tables. Pere saw a -29% move in January, -14% in April, and -10% in July despite finishing up July +29% by the month’s end. Given this potential for large swings, we believe investors into Pere should be ready and willing to risk downturns of at least 50% in their Pere accounts.
With the potential for downswing to be followed by spikes to new highs, the Pere program is an optimal candidate for a contrarian approach of investing in a drawdown. In such an approach, an investor could instruct Attain to start their Pere account when and if Pere is down –xx% on any day. While you could miss out on profits waiting for a pullback, we believe it better to sacrifice opportunity cost (missed profits) to lower actual costs to a level you are comfortable with. (start trade drawdown)
- John Cummings
IMPORTANT RISK DISCLOSURE
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Last week saw market capitulations again driven by a rallying U.S. Dollar as signs again pointed to more stable economic conditions in the U.S. and a gloomier outlook in Europe. The U.S. Dollar added +1.84% eclipsing levels not seen since late December as the Euro -2.23% continued to slide on continued economic evidence that the European Central Bank is now in a state of steady policy for the foreseeable future. The British Pound -2.58% also moved to new multi-month lows on weaker economic data. The balance of the currencies like Swiss Franc shed – 1.40%, although Japanese Yen ended near steady levels from a week ago.
The sustained surge in the Greenback continued to keep metals ailing last week as the sector continued with the downward momentum from the previous week due to worries of a deeper world economic slowdown. The mentality of weaker world economic conditions helped to accelerate declines which again was more evident in the industrial metals with Silver -16.51% and Palladium -13.90%, although Copper held near steady levels for the week. Platinum –10.09% and Gold -8.51% followed suit.
The strong U.S. Dollar again supported Stock Index futures for the most part, although credit worries in the banking sector kept the larger cap issues under wraps. The stronger currency seemed to maintain the parading of investor movement of cash back to U.S. investments on ideas yield potential will improve versus other foreign options. The small caps led the way with the Russell finishing the week +3.17% and the Mid-Cap gaining +1.54%. The NASDAQ followed along adding +2.23%, while the S&P finished up just +0.67% and the Dow ended slightly lower.
More worries of a worldwide economic slowdown and added gains in the U.S. Dollar kept the selling pressure intact for the energy complex, although it was a little lighter after the weekly U.S. energy stocks report showed larger than expected draws. Crude Oil lost -1.35%, RBOB Gas shed -0.92%, and Heating Oil lost -0.39%. Natural Gas was again pressured by lighter demand and a lack of tropical storms that usually curtail production and ended the week down -1.90%.
The grain and food sectors had mixed appeal last week, although the grains found their sea legs as demand especially from foreign interests picked up a bit after the recent sharp sell off. The grains also garnered support from a favorable USDA release for Soybeans even though the respective reports for Corn and Wheat were on the negative side. Soybeans gained +3.27%, Corn rose +5.78% and Wheat added +6.05%. Most sectors in the food arena remained in a defensive state from the rise in the U.S. Dollar as Cocoa lost -3.49%, Sugar fell -3.35%, Cotton dropped -3.36% and Coffee lost -2.28%. The livestock sector saw pressure last week from weaker demand as Lean Hogs lost -3.12% and Live Cattle ended down -0.67%.
What a difference a week makes! After starting out the month on the volatile side of things, many option investors found last week's slow down good news for their accounts. For the month to date, LJM Partners continues to be the top performer with returns of +2.31% so far in August after tacking on approximately 1% last week. Another manager that benefited from the slow down in volatility was FCI. FCI had been down approximately -7% heading into last week and by the weeks end had improved to down -4%. The 3% claw back on the week can be attributed to the manager’s implementation of their risk management protocol on several risky trades.
Other option estimates for August are as follows: ACE Investment Strategists +1.5%, Ascendant S1 -4.18%, Cervino Diversified +0.43%, Cervino Diversified 2x +0.88%, Cervino COP -1.81%, Crescent Bay PSI -0.11%, Crescent Bay BVP -1.44%, Diamond Capital flat, Rathiel +0.69%, Summa Capital +0.16%, Zenith Index +0.56%, Zenith Diversified +0.39%, Zephyr Aggressive +1.21%, and Zephyr Moderate +1.72%.
So far in August the Agriculture and grain mangers have remained on the quiet side as results are mixed. Chicago Capital's Spread Arbitrage is leading the way this month with open trade gains of +0.9% taking the strategy into positive territory for the 2008 although still down from their 2007 equity high. Elsewhere, NDX Abednego is down -1.21%, NDX Shadrach is down -1.85%, and Rosetta is down -2.5% for the month after being up +0.5% coming into last week.
Multi-Market long term trend following managers are also experiencing a resurgence in August. Many managers that were caught in the middle of July’s commodity bubble have begun to bounce back in August as new market trends emerge.
Most of the recent movement has occurred in the foreign currency (FX) marketplace as the US Dollar has begun to strengthen. The rise in the Dollar has caused new downward trends in markets like the Euro, British Pound, Swiss Franc, Aussie Dollar and Canadian Dollar, which had all been advancing against the Dollar for the past 12 months. As the FX markets reverse course and move lower, many mangers have started to take short positions. Clarke Capital Management caught the downward move very early in the Euro, Pound, & Swiss in both the Global Basic and Global Magnum programs; and not surprisingly these programs continue to post stellar numbers this month with returns of approximately +31.49% (Global Basic) and +15.05% (Global Magnum) respectively.
Other managers who have successfully caught the downward market trends include Robinson-Langley Capital Management +5.09% (approx), Long Term Trading Navigator +3.93% (approx), Attain Portfolio Advisors Strategic Diversification +1.78% (approx), and Optimus Capital Management +1.31% (approx). Managers just above breakeven for the month include Attain Portfolio Advisors Modified Program +0.64% (approx), Dighton Capital +0.45% (approx) and Hoffman Asset Management +0.13% (approx). Finally, the only two programs in the red thus far in August are DMH Capital Management -0.52% (approx) and Northside Capital Management -3.29% (approx).
Last week was pretty slow on the trading system front with stocks trading mostly sideways while the US Dollar and bond market rallied. The majority of the trading systems did not have their best showings last week and will look for volatility to pick back up.
Beginning with the day trading systems: Waugh eRL had four trades for -$850. Rayo Plus Dax had two trades on Tuesday and Wednesday for a loss of -$2,575.26. Finally, Compass SP had a setback of -$4,224 but is still on pace for its best year since inception.
Moving on to the swing trading systems, Bounce eMD and SeasonalST ES both exited long trades from the week prior, for +$1,030 and +$1,865 respectively. Jaws US 400 lost -$665.75 on a short trade while the Jaws US 450 made +$1310.60 on a long trade. Other swing systems held their respective positions: Signum TY and EBL are holding long, Mesa Notes is holding short, Tzar eRL is holding long while the NQ and ES are short.
In long-term trading, most trend following programs have started to go long the US Dollar Index, and short the Canadian Dollar, British Pound and Swiss Franc. The US Dollar is now almost 9 % off its April lows after looking like it was going to make a new low mid-July. Another new trend has been short metals including Copper, Gold and Silver. On the long side, domestic bonds have finally started to catch up with their foreign counterparts and triggered signals to enter long for most programs last week across the spectrum of bonds (30, 10, 5 and 2 Yr).
IMPORTANT RISK DISCLOSURE
Futures based investments are often complex and can carry the risk of substantial losses. They are intended for sophisticated investors and are not suitable for everyone. The ability to withstand losses and to adhere to a particular trading program in spite of trading losses are material points which can adversely affect investor returns.
Past performance is not necessarily indicative of future results. The performance data for the various Commodity Trading Advisor ("CTA") and Managed Forex programs listed above are compiled from various sources, including Barclay Hedge, Attain Capital Management, LLC's ("Attain") own estimates of performance based on account managed by advisors on its books, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.
The dollar based performance data for the various trading systems listed above represent the actual profits and losses achieved on a single contract basis in client accounts, and are inclusive of a $50 per round turn commission ($30 per e-mini contracts). Except where noted, the gains/losses are for closed out trades. The actual percentage gains/losses experienced by investors will vary depending on many factors, including, but not limited to: starting account balances, market behavior, the duration and extent of investor's participation (whether or not all signals are taken) in the specified system and money management techniques. Because of this, actual percentage gains/losses experienced by investors may be materially different than the percentage gains/losses as presented on this website.
Please read carefully the CFTC required disclaimer regarding hypothetical results below.
HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN; IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM. ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK OF ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL WHICH CAN ADVERSELY AFFECT TRADING RESULTS.