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Managed Futures Spotlight: Integrated Managed Futures Corp. Global Investment Program
June 1, 2009
Who is the Advisor:
The Advisor is Integrated Managed Futures Corp. (IMFC) of Toronto, Ontario, Canada. IMFC is the managed futures division of Integrated Asset Management Corp. (IAM). IAM is a publicly-traded company on the Toronto Stock Exchange(TSX: IAM), and majority owned by management.
IAM is a manager of alternative assets, with over $ 2.1 billion in assets under management in private equity, private debt, real estate, hedge funds and managed futures. The managed futures division is currently managing only $8mm of this total across two programs: the IMFC Global Investment Program and the IMFC Global Concentrated Program. The manager also offers the IMFC Managed Futures Fund as well as the IMFC FxVol Program which trades OTC foreign exchange products. Clients can also choose to trade the IMFC Multi-Strategy Program which is a combination of the Global Investment Program and the FxVol Program.
IMFC’s unique investment management team comprises 4 individuals: Roland Austrup, President & CEO; Robert Koloshuk, Director of Trading and Senior Strategist; Adam Kolkiewicz, Quantitative Research Associate and; James Rider, Portfolio Manager. This team has, individually, significant prior trading and investment management pedigree from major Canadian investment firms including ScotiaMcLeod, BMO Nesbitt Burns and CIBC World Markets in addition to strong academic credentials.
IMFC separates itself from other multi-market, systematic managers in two respects. First, as part of IAM, IMFC enjoys all of the benefits of the infrastructure and operational support of a large investment management organization, as well as the transparency, compliance and oversight associated with a public company. This affords the investment management team the opportunity to focus on research and trading, while the parent company manages all operational aspects of the business such as fund structure and administration, compliance, sales and business development and all other general and administrative functions of the business. This is setup is especially advantageous in today’s volatile market environment, and is much different than the one or two man band CTA’s many managed futures investors have grown accustomed too.
Second, and perhaps more importantly, IMFC is a research driven firm and has built what we believe to be an exceptional research platform. IMFC has exclusive research agreements with both faculty members and the Center for Advanced Studies in Finance (CASF) in the Faculty of Mathematics (the world’s first and largest faculty of mathematics) at the University of Waterloo, in Waterloo, Ontario. In addition to his role at IMFC, Dr. Adam Kolkiewicz is an Assistant Professor of Statistics and Actuarial Sciences at Waterloo and a co-founder and Director of CASF. Roland Austrup is also a Director of CASF.
This means the IMFC team is more than just the individuals mentioned above, as it includes staff and students from the university. While all research ideas originate from the investment management team, these ideas are then parsed and analyzed at the University for statistical validity.
When not trading or working on their statistical models, the IMFC Management team relaxes at home with friends and family. CEO Roland Austrup lives in Port Sydney, Ontario, north of Toronto, with his wife and three children. He is an accomplished amateur chef, using locally sourced ingredients whenever possible, including fish freshly caught from the lake on which he lives. Rob Kolsohuk is an enthusiastic windsurfer, white-water kayaker and rock climber. Most weekends early in spring find him in the freezing waters of Ontario rivers, when the ice has just gone out and the water levels are at their highest. He is also a keen fly fisher as well. James Rider is also an outdoorsman as “he is an enthusiastic sailor, a passion he brought back to Canada when he returned from 10 years in Singapore, where he launched CIBC’s FX options business for Asia. He is also a scuba diver, cyclist and says that he plays squash (badly, but with energy and enthusiasm.)”
How Do the Programs Work:
The IMFC Global Investment Program is what we would call a “very long-term”, systematic trading program that focuses on extremely long-term price trends that generally last one year or more. The portfolio is broadly diversified across more than 60 industrial, agricultural and financial sectors, allocated 50 % to financial futures and 50 % to physical commodities. The IMFC Global Investment Program IMFC utilizes proprietary systematic trading strategies to invest in long-term price trends. The average duration of profitable trades is approximately one year, though they often last anywhere from two to five years. Risk management, which accounts for two thirds of trading activity, operates at much higher frequencies of as little as two days.
The central investment tenet of the IMFC Global Investment Program is that markets exhibit serial correlation or price trends and other persistent anomalies that cannot be explained by random behavior or the assumption of fully informed and rational market participants. Price trends, or serial correlation in market prices, are caused by changes in risk premiums or the amount of return investors demand to compensate for the risks they are taking. Risk premiums vary significantly over time in response to deeply rooted supply and demand trends for physical commodities, new market information, and changing economic environments. When risk premiums decrease or increase, underlying assets are re-priced. And since investors typically have different expectations, large shifts in markets can take several months or even years as expectations are gradually adjusted. Risk premiums include the cost of capital, equity risk premiums, yield differentials between currencies and the convenience yield associated with holding or not holding physical commodities.
The core investment strategy of the IMFC Global Investment Program is based on a risk budgeting strategy of allocating capital to markets and utilizing that capital based on the amount of risk premium being priced into markets. IMFC utilizes a fixed risk budget that targets long-term average annualized downside deviation of less than 13%. This risk budget is then equally allocated across over 60 markets, adjusted by their volatilities and correlations. As a result of this allocation methodology, generally 50% of the portfolio risk budget is allocated to globally-traded industrial and agricultural commodity futures markets, and 50% is allocated to global currency, treasury debt and equity index futures markets.
Initial risk budgets derived from this allocation process are further managed utilizing proprietary quantitative algorithms to identify potential periods of underperformance in any particular commodity for IMFC strategies. In these situations, initial risk budgets may be systematically reduced or eliminated until the same algorithms portend an end to the potential period of underperformance.
The degree to which a market’s allocated risk budget is then utilized is determined by the net position of multiple trading strategies or algorithms that sample market prices in order to capture persistent risk premiums and changes in risk premiums over time. Unutilized risk budgets that result from conflicting underlying signals are not re-allocated to other markets but go to cash. In addition to the core investment strategy, the IMFC Global Investment Program is complemented by additional algorithms that are based on other persistent anomalies or structural biases identified in certain markets.
IMFC believes that the success of a trading program is primarily contingent upon the implementation of a robust and well defined risk management model. IMFC utilizes a multi-faceted risk management program based on low levels of risk exposure and broad diversification that includes, but is not limited to, the following measures: Margin-to-Equity Targets, Risk Exposure Limits, Diversification, and Risk Balancing.
As markets continue to evolve over time and as IMFC is continuously engaged in market research, a core feature of the IMFC Global Investment Program is that it may also, in the future, incorporate additional trading and risk-management strategies and/or modify or eliminate all or some of the current trading strategies already in use.
The IMFC Global Concentrated Program:
The IMFC Global Concentrated Program is a derivative of the IMFC Global Investment Program in that it selects trades from the IMFC Global Investment Program by utilizing an additional algorithm that measures the confidence of trading signals and risk budgets generated by the IMFC Global Investment Program. The IMFC Global Concentrated Program only initiates positions in a market if the underlying trading signals and risk budgets meet certain threshold levels of confidence or strength. Position sizes are then calibrated based on the volatilities and correlations of markets offering current positions and a long term average portfolio downside deviation target of less than 13%.
As a result of the additional “confidence” algorithm, some of the key differences between the IMFC Global Investment Program and the IMFC Global Concentrated Program include, but are not limited to the following:
Lower Minimum Account Size: the IMFC Global Concentrated Program can be traded with a trading level of $500,000 versus a $2 million minimum for the IMFC Global Investment Program.
Lower Exposure: the IMFC Global Concentrated Program is expected to have lower overall market exposure than the IMFC Global Investment Program, as measured by both number of contracts held in an account and by margin-to-equity ratios. IMFC believes that this lower level of market exposure will be particularly evident during periods of underperformance for the IMFC Global Investment Program and managed futures in general, such as what just occurred in April 2009, potentially resulting in fewer left tail events or fewer ‘larger than statistically normal‘ drawdowns;
Portfolio Concentration: the IMFC Global Concentrated Program is expected to have a greater concentration of positions and, therefore, less diversification than the IMFC Global Investment Program. As a result, IMFC expects that the IMFC Global Concentrated Program will likely experience slightly lower Sortino and Omega ratios than the IMFC Global Investment Program over the long term.
Throughout the years we have interviewed quite a few emerging managers (less than $10mm under management) who are looking to get their foot in the door of the managed futures space; but very few of them can meet the pedigree of Mr. Austrup and his team. The combined experience of the trading team and PhD level statisticians gives the program much more experience than its two year track would indicate, in our opinion. Plus, considering that Integrated Asset Management, who is a publicly traded company, has gone ahead and put their implicit “stamp of approval” on the IMFC, tells us that this group could be a genuine diamond in the rough.
The firms association with the University of Waterloo is a huge competitive advantage in our opinion. The fact that IMFC has access to some of the brightest minds in the math world can only help their program as they continue to update and massage the trading models. Also, the balance of experienced traders and academia should help prevent over optimization of models. Over optimizations (also known as curve fitting) can be a fatal flaw for those that are strictly looking at the numbers and statistics, while not considering the actual trading environment (kind of like book smarts versus street smarts)
On the downside, we don’t like that they have struggled just like many other CTAs thus far in 2009 – it would have been nice to see them zig while the managed futures space zagged. But we also can’t blame them for doing so as the high correlation between markets and sharp trend reversal since March has been a serious headwind for systematic multi-market programs.
Back to the good - the IMFC program just hit a milestone of sorts as their program now has a track record in excess of 24 months. Typically, once a manager hits two years they can be considered a viable investment option and no longer just an emerging manager. Not only did the IMFC Global Investment Program make its two years, it did so in impressive fashion with a compound ROR or 21.14% with a max Drawdown of -10.47%. ‘Past Performance is not necessarily indicative of future results.’
We also like that Mr. Austrup and his team showed some flexibility and creativity with their development of the IMFC Global Concentrated Program. The request for this type of program came at the behest of investors who wanted to be part of the IMFC program but didn’t have the $2mm in minimum capital required to trade. So often, we meet with promising managers who have extremely high minimum investment levels even though they sometimes have barely any money under management. Often times this leads us to wonder why the manager couldn’t develop a model that allows those looking to allocate less than millions to get their foot in the door with a quality manager. At $500,000, the minimum investment required to get involved with the Global Concentrated Program is a refreshing attempt by the manager to work with the marketplace and investors rather than against them.
Overall we have been very impressed with Mr. Austrup and his team up to this point. The entire IMFC team as well as their counterparts at IAM have been very receptive to our due diligence efforts and have complied with every request we have made. We’ll be anxious to see how the smaller concentrated program performs (so far is has been up while it’s big brother has been down the past two months), and looking to add both programs to our recommended list shortly.
- John Cummings
IMPORTANT RISK DISCLOSURE
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Improving worldwide economic conditions, a party change in the Indian government and ideas that recent stimulus packages granted by several governments would lead to stronger purchases led to another constructive month for most sectors of commodities. Asian economic reports were again construed as improving in May as several releases pointed to renewed manufacturing and building especially in China. Results of the Indian elections were also a main catalyst for firm price activity in most sectors as the newly elected government has a leaning toward pro-growth which should lead to strong demand for several commodities in the foreseeable future.
The marketplace continued to be fixated on the potential for inflation following all of the global stimulus packages - leading to large moves in several protein commodities, although the biggest boost from inflationary ideas came into play with the energy sector. Energy prices were also buoyed by talk emanating from China that the government plans to increase storage facilities to build a larger stockpile . For the month RBOB Gasoline was better by +32.29%, followed by Crude Oil +25.47% and Heating Oil +17.86%. Natural Gas -5.57% price activity continues to be hampered by large supplies.
The Food and Ag sectors took their cue from the pro-growth inflation rage that has taken over in most market sectors. China continues to forge ahead with strong purchases of soybeans and soybean meal which has been the main catalyst, especially with tight old crop supplies. Wheat and corn continue to follow along although planting worries have also led to further support. Activity in the grains for May saw Soybeans +24.58%, Wheat +16.88% and Corn +5.31. In the livestock sector Lean Hogs -11.07% and Live Cattle +0.47% continued to be hampered by the swine flu wake and lagging domestic seasonal demand. Soft commodities also caught the ride on the inflation train especially with China’s appetite to build food stocks further with Cotton +20.32%, OJ +19.33%, Sugar +16.88% and Coffee +16.74%.
U.S. stock indices and their corresponding futures markets came roaring back in May to close near their year to date highs. The Russell 2000 led the way up 18.99% for the month, followed by the S&P Midcap 400 +17.85%, NASDAQ 100 +16.00 %, S&P 500 +15.51% and the Dow Jones 30 rounding the others out at +12.21%. Bond markets had a negative correlation to the rising equity markets as they are traditionally expected to do with the Thirty-Year Bonds finishing the month down –8.52% and the Ten-Year Notes down –4.22%.
Elsewhere, metals markets continued to trend higher with Silver leading the way up 19.96% for the month, followed by High Grade Copper +19.11%, Palladium +8.74 %, Gold +5.78% and finally Platinum +5.69%.
Moving on to currency markets, the U.S. Dollar Index declined by -7.52% for the month. Driving the Dollar lower, the British Pound saw the biggest increase against the U.S. Dollar up +12.99% for the month, followed by the Euro Currency +6.91%, Swiss Franc +6.54% and Japanese Yen +4.07%.
At the beginning of the month it appeared that May had all the makings of another tough month for multi-market managers. Both systematic and discretionary traders were being plagued by increased correlation across all market sectors that saw markets that typically trade in opposite directions rise and fall together. It also saw markets like soybeans and sugar that typically have no correlation to stocks trade in the same direction as the stock market nearly every day.
Last month’s top multi-market manager was the Futures Truth MS4 program which was up approximately +9.37% for the month. The FT MS4 program is a short term trend follower that can quickly enter and exit trades and had success trading treasuries and energies in May. The Futures Truth SAM 101 program also had a good month of May at +6.51%. Congrats to the Futures Truth team on a great month in 2009!
Other profitable managers in May include Robinson Langley at +7.89% est., Hoffman Asset at +7.31% est., Dighton USA Swiss Futures at +5.97% est., Attain Portfolio Advisors Modified at +2.12% est., Mesirow Financial Commodities Absolute Return +0.89% est., and Mesirow Financial Commodities Low Volatility at +0.28% est. Finally, today’s highlighted manager Integrated Managed Futures Global Concentrated was up and estimated +0.25% for the month.
Managers in the red include DMH Futures at -0.16% et., Attain Portfolio Advisors Strategic Diversification at -0.38% est., Clarke Global Magnum at -3.56% est., Lone Wolf Investments LLC Diversified at -5.04% est., and Clarke Global Basic at -7.92% est.
Short term stock index traders had a pretty good month as well with 2 out of the 3 managers we follow posting gains. The top performer was the Paskewitz Asset Management 3x Contrarian Stock Index Program with returns of +2.21% est. Pere Trading Group also had a good month at an estimated +1.90%. Finally MSLO continues to struggle losing approximately -3.58% for the month.
As far as option trading mangers go – May 2009 marked the official end of an era (Jan 1999 – May 2009) with the closing of Zenith Resources Index Options program to individually managed account (he is keeping his fund open for now).
Zenith Index Options was considered, by many, to be the “Blue Chip” of Index Option trading with an average annualized return of 19.34% over the period and max drawdown of 10.28% in October 2008. By most CTA standards, a 10.28% drawdown is not a fatal blow, nor was it one that Zenith felt would force his hand into closing the program; however after months of poor liquidity and lackluster returns he made the decision to throw in the towel “for now”. Zenith relies on collecting income potential (risk premium) by selling naked put and or call options on short-dated deep out-of-the-money strike prices on the S&P 500 futures– but following last October, the market volume and value of these options “dried up” according to the manager - making his strategy difficult to execute without significantly increasing the risk per trade. From our perspective; we very much appreciate his work and service to the client accounts over the years and further, greatly appreciate his dedication to risk management throughout this very challenging period.
While there are still a few lone managers who remain active in the short-dated naked option space (i.e. ACE Investment Strategist), the majority of the Index Option trading mangers we track have made a shift and or fully embraced the need for expanding the time frame and complexity of their strategy. For a complete list of our recommended Option Trading managers please e-mail us at email@example.com or go online (www.attaincapital.com) to research the managers below.
For the month here are our May Option Trading estimates: Ace Investment Strategists +5.42%, Cervino Diversified Options -1.71%, Cervino Diversified 2x -2.71%, Crescent Bay PSI +0.97%, Crescent Bay BVP +1.55%, FCI OSS -7.5%, FCI CPP -5.69%, and Raithel Investments +0.73%.
Agriculture and Grain managers are continuing their show of mixed results despite some emerging trends. NDX Capital was the month’s estimated top performer with Shadrach earning +1.08% and Abednego pushing ahead +0.5%. Rosetta on the other hand struggled early in the month on a Lean Hog position that ran against them. For the month Rosetta dropped approximately -7%. Rosetta’s drawdown is now 14 months in length yet remains less in magnitude than their historical low made back in 2001. Historically speaking there was similar period in length between March 2006 and December 2007 where performance remained flat to down. Each investor should have their own line in the sand in terms of both time and magnitude of drawdown, so they can systematicall drop underperforming managers – and Rosetta is on our watch list for both.
Day trading systems had mixed results in May but the overall sentiment is that intra-day trends may be returning as the VIX index (a common measure of fear in the markets) continued to trend downward. The VIX ended the month at 28.92 down from 35.30 on May 1st. It hasn’t been this low since September 2008.
(Note: the VIX is quoted in terms of percentage points and it signifies the expected movement in the S&P 500 index over the next 30-day period, on an annualized basis. For example, a VIX of 28.92 represents an expected annualized change of 28.92% over the next 30 days. Then computing will give you an expected S&P movement up or down of 8.35% over the next 30-day period. Using today’s closing S&P Price of 938.80 that means an expected movement of 78.39 points up or down over the next 30 days.)
Of the winning day-trading systems Bounce outshined all other systems. Both Bounce MOC EMD (+$2,546.70) and Bounce MOC ERL (+$2,355.70) won all trades. Congrats Bounce! Other winners were Compass SP (+$1,447.52), Clipper ERL (+$500) and Viper II ES (+$290). Those that did not perform as well were Schooner 2 EC (-$2,715), Waugh ERL (-1349.40) and HP Intraday Breakout ERL (-$1,307.41).
Swing systems impressively found the multi-day trends across all markets traded. From the E-mini market to the Russell 2000 to the US bond market all systems were in the black. These are strong signs the markets are cooling off a bit as trends multi-day trends are providing follow through.
Swing system top performers in May were led by Strategic SP (+8,350). Bounce was equally as successful as its day-trading counterparts. Both Bounce EMD (+$3,520) and Bounce ERL (+$3,500) won all trades for the month. Other standouts were Jaws US 60 (+$2,599.92), Strategic ES (+$1,992.5) and AG Mechwarrior ES (+$1,592.50). Let’s hope these swing systems continue to impress.
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.