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Managed Futures Spotlight: Robinson Langley Capital
September 28, 2009
Many of you told us in our survey a few weeks ago that you would like to read about emerging managers we have ‘discovered’ which aren’t generally known or listed elsewhere. Unfortunately, many of you also said you would rather see a managed futures program with a lengthy track record rather than a newer program with strong recent performance.
Well, this month’s Managed Futures Spotlight is on a manager who may just satisfy both requests - Robinson-Langley Capital Management (RL Capital) of Greensboro, NC. RL Capital is a multi-market trend following style program with close to a three year track record that isn’t on many of the lists you’ll find elsewhere.
Who is the Manager:
RL Capital is owned and operated by Mr. Jon Robinson and Mr. Brandon Langley from Greensboro, NC. The two founding partners are graduates of UNC Greensboro where they met while studying economics in the early 2000’s. (that’s not a typo, when looking at young talent – we shouldn’t be surprised if they are well… young, as in graduated college in this decade young)
Mr. Robinson is responsible for the daily implementation of the strategy as well as its evolution on a daily basis. In addition, Jon is also responsible for oversight of all front and middle office operations. Before the founding of RL Capital, he held the position of equity research analyst for Prudential Equity Group. Prior to joining Prudential Equity Group, Mr. Robinson held positions as trader and market maker in the equity markets at Bear Wagner Specialists. He graduated from the University of North Carolina at Greensboro in 2003, earning a BS degree in both Finance and Economics. In his spare time, Jon enjoys playing basketball and tennis, is an avid UNC basketball fan.
Mr. Langley is the head of developmental research and responsible for the creation of all technical aspects of the program’s analytical model development and the overall portfolio’s ongoing proficiency. Mr. Langley established the proprietary testing platform which forms the basis for the Robinson-Langley investment process, focusing on its robustness and flexibility. He executed all the coding and technical aspects required during the trading system development process. Prior to founding RL Capital, Mr. Langley held the position of financial analyst in the Products Division for Gilbarco Veeder-Root, and currently serves as a Senior Analyst for Wells Fargo’s automotive lending division, Wells Fargo Dealer Services. He graduated in 2004 from the University of North Carolina at Greensboro earning a Master’s Degree in Economics. When not involved with trading, Brandon enjoys traveling with his wife Ashley, spending time with his family, and playing various sports such as golf, basketball, and soccer.
How Does the Program Work?
RL Capital believes that the key component to long-term success and viability as a CTA is adopting a trading methodology or philosophy consistent with the manager’s psychological makeup. To this end, Jon and Brandon identified trading “with the trend” while being fanatical about managing risk as their philosophy. Rounding out their philosophy is the idea that trading success is defined in years (not months) and having a framework of rigorously tested trading rules. Following a nearly three year period of researching and testing, RL Capital felt it had built an analytical framework which would allow for the generation of superior risk-adjusted returns over the long-run.
The RL Capital program is a traditional trend following style multi-market program. The strategy is 98% systematic, with a 2% discretionary component for execution purposes. The program is traded using a single system/strategy with the average holding period for profitable trades being approximately five weeks. As a result of the principal’s research on the nature of trends, the system is designed to identify risk and reward changes throughout the duration of the trend. That said, while the average holding period is five weeks, there can be quite a bit of variance in the hold time depending upon the duration and volatility of the trend. Core trend following positions are held for an average of two to three months; while RL Capital’s somewhat unique “re-entry” trades are held, on average, for three to four weeks.
These re-entry trades are a special circumstance trade where the system looks to take advantage of a continuation in the market trend after the initial trade has been exited for a profit, by re-entering the trend in the same direction. Based on the manager’s studies; these types of trades are shorter in duration but have a higher winning percentage than typical trend following trades.
RL Capital’s entry and exit strategies were tested as much, if not more, for their robustness as their profitability. What do we mean by robustness? In technical trading jargon – we usually refer to a trading model’s parameters as robust if they do not suffer significant deterioration after testing them on different markets, time frames, and trading environments. The entry and exit strategies are also similar to every other aspect of the program in that they incorporate volatility and correlation.
The entry criteria, as we understand it, is not that much different than other Donchian breakout-type trend following models (there are only so many ways to identify a trend) - looking for prices to breakout in one direction or the other on a daily market close basis from a consolidation area. One difference is that RL Capital uses volatility as its main component, not price. This is kind of similar to when you hear pundits on CNBC say a rally or sell off was the real deal because of high volume behind it. Similarly, RL Capital can view a price breakout as more significant if there is higher volatility associated with it.
On the exit side – RL correctly admits that no exit strategy will perfectly time the end of a trend, but argue that changes in volatility are the best indicator to use in this process. Using volatility in addition to price, open position exits are designed to accelerate (move closer to the current price) or decelerate depending on the underlying volatility of the market the position is in (and how much time has elapsed since the entry). Specifically, positions are given more room early in the trend, and then restricted based on growth in volatility.
When looking at how much market exposure to have on each trade, RL Capital includes not only correlation and volatility, but also calculates expected profit by looking at certain characteristics inherent to trends (a down trend following recent all time highs may have more room to go than a down trend following a length consolidation period, for example). Rather than relying on a static position sizing model applied the same way throughout a given trend, RL believes using a dynamic model can enhance profit potential in the sometimes limited opportunities markets make available.
To further take advantage of trending markets, RL Capital will “pyramid”, or add to, winning positions at pre-determined intervals based on volatility readings. A key to such pyramiding in their opinions is continually normalizing risk as positions are added by adjusting stops based on the number of positions, current correlation and diversification into account. [Disclaimer: stop orders cannot guarantee an order is filled at the desired price].
While RL Capital will add to winning positions as mentioned above, they never add to losing positions. The initial risk on a given position is always less than 1% of total equity with a maximum risk of less than 2.5% once a full position has been established. Once a specific threshold is crossed, the stop is then adjusted to approximately breakeven. The programs average margin to equity ratio is 12.50% with a max of approximately 25%.
RL Capital believes its most unique piece of logic is their proprietary trend filter. This filter process simultaneously measures momentum and volatility to gauge the underlying strength/weakness, or what RL calls the sustainability, of a given move before ever allowing a long/short position. The filter is more restrictive after a winning trade as a means to avoid reversing on normal retracements.
Finally, the current portfolio includes futures on the S&P 500, NASDAQ, Nikkei, US 10 Year Note, US 30 Year Bond, Eurodollar, Gold, Copper, Corn, Soybeans, Soybean Oil, Sugar, Cotton, Coffee, OJ, Lean Hogs, Live Cattle, Crude Oil, Heating Oil, Natural Gas, RBOB Gas, Canadian Dollar, Aussie Dollar, US Dollar Index, Japanese Yen, and the Swiss Franc. Markets have been selected based on liquidity and correlation analysis.
RL Capital is now closing in on three years of real time trading, and they are looking less and less like an emerging CTA and more and more like the real deal. Attain was lucky enough to get started with Jon and Brandon near the beginning in early 2007, and have enjoyed watching them and getting familiar with their trading style during their incubation period. The program as a compound rate of return of 25.45% with a drawdown of 13.22% since inception (Past Performance is Not Necessarily Indicative of Future Results) which is impressive on its own, but even more impressive when considering how other trend following programs have performed in 2009. Heading into September, the program was up 3.54%for the year with a drawdown of -8.65%. Although these numbers are not impressive by themselves they do hold more weight when considered alongside the performance of their peers as well as the various CTA Indexes in 2009, all of which are in the red.
RL has given back some profits here in September, possibly enough to take them into the red for the year - but this still leaves them ahead of their competition in the multi-market trend following sector. The fact that RL has made money when others haven’t shows that they are doing something different and have a competitive advantage over their competition. Specifically, in this case, it is RL Capital’s proprietary trend filter and exit strategy that assist in limiting the number of whipsaw trades during highly volatile, trendless periods such as we’ve experienced 2009.
We have also been very impressed with the way the principals of RL have gone about promoting and managing the growth of their program. With back to back years of 30%+ returns (Past Performance is Not Necessarily Indicative of Future Results) it would be easy for Jon & Brandon to have taken their eye off the ball, so to speak, by aggressively marketing the program perhaps at the cost of improved infrastructure and methodology. To their credit, the principals have decided to take the longer road and build up their infrastructure while the model proves its worth in hopes of larger sums of money under management down the road. They want to make sure they do it the right way. Often time’s newer managers who see early success become too big, too fast, which can and often does lead to worse performance.
Despite all our likes, we did find one area we believe RL could improve on, and that is market selection. Right now RL is only trading a select group of markets, and while they have exposure to many different sectors, we do believe that there are other markets worth investigating including those in Europe and Asia. With the growth of electronic trading over the last 3 years markets that were once difficult for US managers to trade are now very accessible and provide more trading opportunities (trends) for multi market managers.
Overall it is hard to nitpick and complain when a manager has performed as well as Robinson-Langley has over the last three years (Past Performance is Not Necessarily Indicative of Future Results). We were happy to be one of the first introducing brokers to begin working with Jon and Brandon in 2007 and we continue look forward to expanding our relationship with them down the road.
- John Cummings
IMPORTANT RISK DISCLOSURE
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Feature | Week In Review: Stock/commodity rally takes a breather - Gold falls $18 | Chart of the Week
The pulse for most sectors of the marketplace was on the soft side during the past week as several events led to doubts the recent rally might be sustained. Disappointing releases from both the housing and manufacturing areas of the economy helped apply the brakes to the recent rally. Commentary from the FOMC was another culprit to investor uneasiness as they indicated the time is now to start winding down some of the stimulus and emergency funding programs that were implemented to get the economy out of harm’s way. The Term Auction Facility was one program the FED mentioned which could reduce the amount of capital for short-term lending to banks. The same or similar actions were indicated by Central Bankers in Europe and Asia. Asian news was fairly quiet during the past week although a few weaker than expected reports seemed to keep things subdued there as well. The lineup for economic reports this week is fairly light, although the headline monthly unemployment report on Friday could be a market changer. Stock Index futures were led lower by the small caps with Russell 2000 futures -2.74% and Mid-Cap 400 futures -2.67%. The larger caps were led by S&P 500 futures -1.88%, Dow futures -1.78% and NASDAQ futures-1.41%.
Energy complex price activity was very weak as sharp increases in weekly supplies for crude oil and gasoline spelled trouble. The current overwhelming supplies should continue to keep price activity subdued especially as seasonal support from stocks building by retailers heading into the winter months is nearing an end. For the week RBOB Gasoline -10.92% led the way followed by Crude Oil -8.93% and Heating Oil -8.18%. Natural Gas +6.29% was supported by the changing seasons and expected upgrade in usage.
The metals complex was another hit by investors worry that the world economy may not sustain current estimates for growth which led to lower activity. Platinum -4.01% led the way down followed by Silver -3.89%, Palladium -3.15%, Gold -1.85% and Copper -1.60%.
Currency activity during the past week was mixed as the U.S. Dollar +0.44% found support from the news the Fed will cut back stimulus programs. The British Pound -1.72% and Euro -0.12% were both under the weather from the same news and ideas that the G-20 would indicate a stronger dollar policy. Japanese Yen +1.88% found support on ideas that their new government would keep a stronger Yen policy. The rate sector again found support from favorable auction results as 30-year Bond futures ended +1.00% and 10-year Note futures were +0.94%.
Commodity and Food sectors posted mostly lower results last week with concerns about world economic growth hampering expected demand that has been built into prices with the recent rally. The Soft arena felt the most pressure with OJ -11.61% leading the way followed by Coffee -6.14%, Cotton -3.87%, Sugar -1.469% and Cocoa -0.83%. The Corn +5.03% continued to find support from favorable USDA numbers and lingering concerns of crop problems given that the crop remains behind the usual growth stages. Wheat -1.66% and Soybeans - 1.59% remained under pressure from the possibility of additional acres next year due to higher CRP standards. The livestock arena was mixed as Lean Hogs -2.54% was under assault from heavy slaughter levels that continue to hamper chances for a rebound in this sector with Live Cattle +0.53% on steady cash and product markets.
With only 2 trading days left in September and the 3rd quarter, most Option Trading Managers we track are poised to end September and the 3rd quarter ahead. Option Trading has been the hot investment for 2009 with many strategies reporting double digit gains as a function of their unique ability to capitalize on volatility falling from its 2008 all time high. September’s top performer to date has been FCI OSS which is ahead an estimated 5.3% MTD – if this months’ gain holds they are set to be ahead over 20% on the year. FCI has been working hard over the past year to rebound from their September and October 2008 drawdown (-34.63%) and with the help of this month they are getting even closer to a new high.
Other Option estimated performance MTD is as follows: ACE Investment Strategist +0.89%, Cervino Diversified +0.11%, Cervino Diversified 2x +0.26%, Crescent Bay PSI +1.97%, Crescent Bay BVP +0.38%, FCI CPP +0.54%, Oak Investment Group +4.11%, and Raithel Investments +0.46%.
Specialty Manager (spread and agriculture trading) performance has continued to remain mixed for September with some surprise volatility in the livestock markets benefiting Rosetta to the tune of +2.67% while hurting NDX Abednego and Shadrach -3.78% and -4.32% respectively. All 3 agriculture programs are hovering near breakeven for the year. Spread Trading Manager Emil Van Essen is down an estimated -0.48% for September and remains ahead +18.3% through August.
September is looking like another month of mixed performance for multi-market managers. There are some familiar names near the top of the list this month with Clarke Global continuing to lead the pack at +7.96% est. Clarke gave back some profits last week in the foreign currency and metals markets but the overall performance in September for this program has been strong. Lone Wolf Investments LLC Diversified is in second place at +2.68% est. and is being closely followed by Integrated Managed Futures Global Concentrated at +2.46% est.
Other managers in the black include short term momentum trader Dominion Capital Management, who took advantage of volatile market conditions in the currencies last week and is now up an estimated +1.35% on the month. GT Capital Management which also has a shorter term trading philosophy is up as well at +1.93% est. Quantum Leap Capital Management continues to trade well in its first month of trading at Attain with approximate gains of +0.79%. Finally, Hoffman Asset is up slightly for the month at +0.09%.[Mr. Hoffman would like us to remind our readers that our estimate here is based on accounts trading at the $125K level, and that his accounts at the $250K level are roughly 9% better on the year due to their ability to diversify more]
Managers in the red and hoping for a late month comeback include the Attain Strategic Diversification program at -0.30%, Mesirow Financial Commodities Low Volatility -0.27% est., DMH -0.87% est., Mesirow Absolute Return -0.89% est., APA Modified -0.90% est., Dighton Capital USA Aggressive -2.11% est., Futures Truth MS4 -3.22% est., Futures Truth SAM 100 -5.17% est., and Robinson – Langley -5.71% est.
Other managers that we track include Paskewitz Asset Management Contrarian 3X Stock Index -1.13% est. and Typhon Capital Management Drakon Yield Curve -0.68% est.
Trading system performance was mostly higher last week with standouts in both the swing and day time frames. Last week’s Fed announcement on Wednesday caused for some whipsaw trades as stock index futures moved sharply higher only to close the day lower but with the exception of that there were plenty of opportunities for systems to capitalize on.
Beginning with the swing trading programs, Strategic SP hit the nail on the head after exiting a short trade from the week prior on Monday after S&P futures gapped lower, then bought into the rebound and held that trade until the following day. The net result for the week was +$2,475 on the two closed out trades. Sister system Strategic ES followed a similar pattern for +$477.50 due to the smaller point value of the ES contract (1/5 of the value of the full S&P contract). AG Mechwarrior ES strung together some small positive trades for +$455.89 for the week. On the losing side, Jaws US 60 lost -$530 while Bam ES dropped -$1,085.
Changing time frames, Rayo Plus Dax was the top performer among short-term programs last week + €2,825 on five trades. Compass SP and Upper Hand ES finished with similar results + $350 and +$347.50 respectively on one trade a piece. On the flipside, Freedom ES lost -$110 while all three systems active in the Emini Russell market last week were down with Clipper ERL -$140, PSI! ERL -$260 and Waugh ERL -$270.
In long-term trading, trend followers were quick to jump on board with the sellers in the British Pound while many others started to test the waters with bearish trades in Crude and Heating Oil. Traders with long exposure in stock index futures took a small hit last week but still have a ways to go before they will be heading for the hills with significant open trade equity built up across global stock indices.
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.