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Managed Futures Spotlight: Futures Truth Co. MS4 & Sam101

June 29, 2009

 

Managed Futures Spotlight: Futures Truth Co. MS4 & SAM101 Programs

It has been hard for many managed futures programs to find profits in the first half of 2009, as systematic multi-market CTAs struggled with the large trend reversal off the March lows, spread traders have seen fundamentals pushed aside in lieu of one big trade on the future of the world economy, option sellers have still had sharp market spikes (first down, then up) to deal with, and discretionary traders have been slow to come off the sidelines after the once in a lifetime volatility of late last year.

But a select group of shorter term systematic CTAs have seen success through being able to ride both side of the “V-Shaped” recovery we’ve had so far. Todays managed futures spotlight is on one such emerging manager who has found success while others have suffered so far this year.  This month’s managed futures spotlight is on an emerging CTA, the Futures Truth Company (FTC) and their MS4 & SAM101 programs.  

Who is the Advisor?

The manager of FTC MS4 Program and FTC SAM101 Program is Futures Truth Co. located in Hendersonville, NC.  The Futures Truth brand is well known to both trading system developers and system traders as they have produced a quarterly magazine listing trading system results, articles on trading strategies, and top system lists four times a year since1985.  

Research into trading models has been the cornerstone of everything FTC has done for the last 25 years, testing which ones appear valid, which are no good, and ways to improve upon technical analysis.  Along those lines, FTC tells us it is the mission of the firm to develop technical trading strategies that deliver competitive returns with minimal risks. 

What started as a testing facility for publically offered trading strategies has over time expanded to become a CTA which not only tests strategies, but implements them for client accounts.  The original concept behind FTC stemmed from owner John Hill Sr.’s desire to provide “truth” to the often unsuspecting and too trusting individuals who purchase trading systems.   The Futures Truth magazine has tried to do just that for over 20 years, becoming viewed as a ‘Consumer Reports’ of sorts for trading systems.

With more than 40 years in the industry, Futures Truth CEO, John Hill Sr. has researched thousands of trading systems utilizing a multitude of indicators across varied sectors and asset classes.  During these years, Mr. Hill also authored several books on trading techniques including The Ultimate Trading Guide and Building Winning Trading Systems with Trade Station, and has been a featured speaker at conferences around the world.  His research has led to the belief that a multi-strategy approach is the best way to achieve capital appreciation and control risk in today’s economic environment. 

Mr. Hill is joined by his right hand man, George Pruitt.  Mr. Pruitt is a quantitative specialist in the area of technical trading, and has co-authored several trading books with John Hill Sr. for the last 19 years.  Pruitt and Hill also worked together to develop the proprietary testing software platform they utilize for system research called Excalibur.  Excalibur allows FTC to test and monitor thousands of different models without an army of analysts. Completing the management team is Holliston Hurd, who helped manage CTA assets during the late 1990s with the Futures Truth team assisting with research, trading and the back office.  She has been involved as a researcher and trader in the futures industry for more than 20 years.  She and her market analysis have been featured in Futures Magazine, Fortune, on CNBC, and at multiple industry conferences.

How Do the Programs Work:

The Futures Truth programs employ a multi-strategy approach across fourteen different markets with a clear focus on shorter term strategies. The firm’s flagship product called the Futures Truth MS4 Program is the final product of years of research delivered by the Excalibur testing platform built to test systems on both tick and intraday data.  This research led to the development of a series of trading systems that the firm calls the Samurai Strategies.  The Samurai strategies attempt to diversify the trading approach by utilizing non-correlated strategies across differing markets and time frames.  Trades also must pass through several layers of filters in order to be viable.

There are four Samurai strategies inside the MS4 Program (thus the 4 in its name) including 1 short term system, 2 medium term systems and 1 long term system. All systems in this program were developed in house by Mr. Hill and Mr. Pruitt and each strategy trades the same set of 14 markets (Mini Russell, Mini SP, US 10 year Note, Euro Currency, Japanese Yen, Mini Crude, Mini Natural Gas, Heating Oil, Sugar, Cotton, Corn, Soybeans, Wheat, Silver.) The first strategy, named SAM 101, is a very short term trader with an average hold time of 2-5 days.  FTC felt this strategy could also be successful as a standalone program,  and as such they currently offer it as its own managed product called the Futures Truth SAM 101 Program.   The second strategy called SAM 7 can hold trades for 5 to 8 days, while the third SAM 4 can hold positions for 1 to 2 weeks.  Finally, the longer term system SAM 200 will hold positions for up to approximately 1 month.  Each of these strategies examine short term trends, patterns, channels, momentum, and break out analysis to determine trade direction and risk per trade. 

Developed as a portfolio these strategies work together to trade on shorter term basis while also including the trend following component to help smooth out the portfolios equity curve.  The minimum investment for MS4 is $500,000. The manager’s goal is to achieve an annual ROR of 20% with target volatility set at 10%.  Individual risk per trade is determined by market volatility and is typically between 0.5% and 2% per trade.  Protective volatility based stops are used during the US trading session. 

In addition to the MS4 program the Futures Truth Co. also offers the short term SAM101 program as a separate managed program.  The recommended initial investment for the SAM101 program is $200k although a smaller four market portfolio is also offered with a minimum investment of just $50k.   SAM101 is specifically designed to take advantage of short term price movements across a diversified portfolio of markets.   The full size $200k version of this program trades the same set of markets as MS4; however it is only using the one short term strategy for entries and exits.  Stops and targets are based on market volatility and risk per trade can range from 0.50% to 2.00% per trade. The portfolio’s targeted return risk ration is two to one.  The objective is to deliver returns of approximately 15%-20% per year with a drawdown of 10%-15%.  

The smaller SAM101 $50k portfolio trades four markets (Mini Russell, Soybeans, Cotton, 10 year notes) and is slightly more volatile than it’s big brother as it has a one to one expected return with 25% ROR and a 25% max drawdown.  The same system is used to trade the smaller accounts with the only difference being that the max risk per trade is close to 9% ($4500) as the system needs to take at least one contract up to this point in order to be successful.   A lower risk % would result in too many trades being passed upon.

Attain Comments:

Short term strategies are a hot item right now in the managed futures investment universe.  Many investors including institutions and high net worth retail individuals are looking for shorter term strategies to help navigate the choppy seas we are seeing in the commodity, stock index, financial, and currency markets.   We have also found that managers who diversify across time frames (short term, intermediate term, long term) are also becoming increasingly popular.   So, from this perspective, a shorter term and multiple time frame emerging manager like Futures Truth Co. is sitting in the right place at the right time.

Another positive we like is that the strategies utilized in these programs are (according to FTC) a lot older than the track record of the manager (which stands just under 2 years of actual trading) . Both programs (MS4 & SAM101) started trading for client accounts in October 2007 and are now approaching two years of live trading.  The two year mark is a significant milestone (3 yrs is even bigger) for a manager looking to make the jump from emerging to mature.  Clients at Attain began trading the MS4 program in December 2008 and the SAM101 program in March 2009.

Since inception both programs have outperformed their stated goal of 2 to 1 return.  After twenty months of trading the MS4 program has a Compound ROR of 40.22% with a Max Drawdown of 7.31% (end of month basis) and the SAM101 has a 40.70% compound ROR with a max drawdown of 4.39% respectively.  While these numbers are impressive, it is hard for us to determine if the performance is a product of the systems or the current trading environment which has been very friendly to traders with short term/ long volatility strategies.  We expect that as market conditions normalize that the ROR will start to move closer to the stated goal of 20%, while drawdown increases to 10% for both programs.  However, it is also worth noting that in 2009 Futures Truth has significantly outperformed the Newedge CTA Index which is down -4.53% year to date, as well as the Newedge Alternative Short-Term Traders Index which is down -0.83% year to date. [Past Performance is Not Necessarily Indicative of Future Results]

For smaller accounts the $50k four market SAM101 program is an enticing option for those looking for a short term trading strategy with a lower account minimum.   But smaller investors should expect a significant amount of volatility in their account as the max risk per trade of 9% ($4500) is very high.   Plus, since the smaller accounts are only trading four out of a possible fourteen markets, investors can expect the smaller portfolio to perform much differently than its larger $200k counterpart.  We would expect the $50k account to see a max DD of up to 50% ($25,000).   In this respect a $50k investment in FTC SAM101 might more closely resemble an investment in a trading system than an investment in a managed futures product. 

In conclusion we will continue to keep a close eye on the returns coming out of Hendersonville, NC.  The early returns for Attain clients have been impressive as FTC has outperformed their peer group, but in many respects FTC is still an emerging manager yet to prove they can repeat their success with much more money under management.  For those seeking a short term trader at a moderate investment level the FTC MS4 and FTC SAM101 programs are worth taking a look at and discussing with your broker.   Just be conscious of the fact that the early returns usually don’t tell the whole story for emerging managers.  So while we do expect continued good things out of Futures Truth, we also expect that as the track record continues to grow and the manager begins to trade in a variety of trading conditions some of the warts all programs have will be exposed.  

-          John Cummings          

IMPORTANT RISK DISCLOSURE


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Feature | Week In Review: Stocks and commodities edge lower | Chart of the Week

Overview

The market sentiment was mixed as conflicting economic data kept volatility high with price swings very active during the past week. The headline news early in the week was from the World Bank that indicated they would cut their 2009 growth forecasts for most regions of the world which sent not only stock index lower, but most commodity sectors as well. The next news event was the June FOMC meeting which helped firm price activity due to worries of deflationary pressures being excluded from their comments. The news the balance of the week led to further support with news of the Fed scaling back some emergency funding programs along with positive results from Fed Chairman Bernanke testifying in front of a government committee on the B of A/Merrill Lynch merger.  Inflationary related activity continued to ebb with trading focused more on supply/demand scenarios. Economic reports this coming week are very light with the monthly unemployment report being the headliner for the holiday abbreviated week. The headline news from the geopolitical front continued to focus on protesters testing the will of the Iranian governing body inquiring about possible voter fraud along with news that militants in Nigeria have attacked some offshore oil fields which could cause supply disruptions. Asian news was again fairly quiet although there were a few rumblings that expected economic growth might not reach recently revised estimates especially after the World Bank estimates were revised. For the week U.S. equity index futures ended with a mostly softer tone with the Dow futures -1.12%, Russell 2000 futures -0.72%, Mid-Cap 400 futures -0.36% and S&P 500 futures -0.20%. The tech heavy NASDAQ futures ended +.87% due to news of better than expected company performance.                 

Energy futures again featured weaker activity as another round of weekly reports continue to indicate heavy supplies which super ceded the Nigerian militant attacks on oil supply lines.    For the week RBOB Gasoline futures ended -6.85%, Heating Oil futures -2.48%, Natural Gas futures -2.10% and Crude Oil Futures -1.23%. .   

Futures activity for metals was fairly subdued with most posting small rallies with light support coming from ideas that foreign growth, especially in Asia could stoke inflation fears by the end of 2009. For the week Copper +2.10% led the way followed by Palladium +0.95%, Gold +0.51% and Palladium +0.38%. Silver -0.55% slightly lower on spread activity.    

The Commodity and Food sectors were again mostly lower last week with grains seeing the most pressure on ideal growing conditions in the U.S., along with news that yields for U.S. wheat are improving exponentially as harvest moves northward. Activity in livestock continued to be pressured from large supplies of meat protein clogging up the product pipeline. Soft commodities were mixed, although Sugar posted an impressive rally as dry conditions in India continue to make the market nervous about the possibility of supply rationing in the future if the crop does sustain major damage.  For the week Lean Hogs ended -6.23%, OJ -4.98%, Wheat -3.83%, Corn -3.62%, Soybeans -1.49%, and Coffee -0.42%. Sugar rallied +7.72% followed by Cocoa +1.31%, Cotton +1.18% and Live Cattle ended +0.34%.

Activity in currency futures again led to the Japanese Yen advancing against the balance of the complex as perception of more stable economic conditions in Japan helped the cause. News of further promise in European economic conditions helped both the Euro and British Pound to post rallies. For the week the Japanese Yen +1.06 led the rally followed by the Euro Currency +0.93% and British Pound +0.19% The U.S. Dollar Index -0.66% and Swiss Franc -.06% were pressured by cross trading. The Rate sector posted a nice rally last week as a favorable round of Treasury auctions and news that the Fed was scaling back on emergency funding programs helped the cause. 30-year Bonds rallied 3.42% followed by the 10-year Notes +1.76%.         

Managed Futures

Option trading mangers have continued to be the top performers for June.  Leading the way has been the FCI CPP program which is ahead an estimated +7.07%.  FCI’s original OSS program is not far behind with an estimate 4.01% return for June.  Elsewhere, the balance of Option traders we track are also ahead so far in June (one day to go) with the following estimates: Ace Investment Strategist +3.29%, Cervino Diversified Options +0.91%, Cervino Diversified Options 2x +2.65%, Crescent Bay PSI +0.56%, Crescent Bay BVP +0.85%, and Raithel Investments +1.48%.

Previously in this section we have referred to Agriculture and Grain mangers independently – with the addition of a few new CTA’s to the tracking list, moving forward we’ll be referring to a subset of mangers called “Specialty Mangers”.  Our definition of a Specialty Manager is a manger that focuses on a target market or applies a unique strategy (i.e. spread trading) outside of the above categories.  In our opinion, Emil Van Essen’s Spread Trading program fits perfectly into this category as the program is diversified across many markets; however his trading is truly unique in that he engages in inter-market calendar spreads as a means of extracting potential returns.  The program has a live 29 month track record averaging 55.01% return with a historic maximum drawdown of -35.9%.  They are ahead +16.85% YTD in 2009 and are ahead an estimated +1.36% in June. 

Of the Agriculture and Grain specialty mangers, NDX has found success with a bearish position in Lean Hogs and is ahead +0.19% in Abednego and +0.94% in Shadrach.  Rosetta on the other hand is down -5.23% in June as the discretionary program has continued to struggle in the current market environment.

Heading into the final trading day of June tomorrow it looks like the second quarter of 2009 will be a disappointing one for multi-market managers.  This will mark the second quarter in a row where multi-market managers as a group have posted negative returns. One manager bucking the trend has been Integrated Managed Futures Concentrated Program which was up approximately 1.25% for the month as of Friday’s market close.  

Other managers who have an outside shot of ending the month on a positive note include Mesirow Financial Commodities  whose Low Volatility Program -0.13% est., and Absolute Return Program -0.44% est. are close to breakeven.   Clarke Capital Management is also close to breakeven with the Global Magnum Program -0.08% est. and Global Basic Program -0.15% both down slightly for the month.   Dighton USA Aggressive is also at breakeven but it does not look like they will trade again before the end of the month.

Managers further into the red include Attain Portfolio Advisors Strategic Diversification Program at approximately -1.55% while the APA Modified Program is at approximately -4.50%.   Futures Truth SAM 101 looking at a negative month at -1.29% est. as is the Futures Truth MS4 program at -2.27% est.   DMH is down -1.80% est. and Lone Wolf Investments LLC Diversified is at -2.29% est.  Finally, Robinson Langley -4.38% est. and Hoffman Asset Management -6.46% are also down for the month.

Short-term stock index traders are at about breakeven as well with Paskewitz Asset Management Contrarian 3X Stock Index gaining +0.16% est., while MSLO is down -0.13% est.   

Trading Systems 

Trading systems rebounded last week with the majority of the programs across both the day and swing time frames finishing the week on a positive note. Beginning with the swing systems, Strategic SP hit pay dirt after closing out a trade for +$7,500 early in the week. Sister system Strategic ES had a similar trade good for +$1,582.50 because of the smaller contract size of the ES relative to the SP. Ultramini ES had one trade early in the week that reached its profit of objective for +$382.50, the same as the weekly tally for the program. Finally, AG Mechwarrior started the week on the right foot but then followed it up with a losing trade for a net result of +$6.85 for the week.

Moving on to the day trading systems, top honors went to ATB Welcome v2 Dax which made €3,002.50 on one trade early in the week. Other programs trading on Eurex that finished ahead of the curve were ATB TrendyBalance v1 Dax +€2,430 and ATB TrendyBalance v2 Dax +€2,455. Domestic systems that finished in positive territory were Compass SP +$801.45, Waugh ERL +$577.89, Upper Hand ES +$520, Viper II ES +$355 and Clipper ERL +$310. Not able to make it into the upper echelon last week were Rayo Plus Dax -€42.50 and BetaCon 4/1 ESX -€260.

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.