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Call us at 800.311.1145 to speak with one of our alternative investment specialists. We answer the phone in One Ring. Try It.Sign up to view performance on 100s of Managed Futures Programs, Trading Systems, and Managed Forex Programs. Sign up FREEWhat are Managed Futures? Is this the same as CTAs? How do I invest? Click here  to learn all of this and more on our extensive managed futures education pageHow to set watchlists? Build portfolios? Find correlations? and more. Click here to take a tour of our advanced toolsUse our most popular tool to create custom multi-program portfolios. Click here to get started today by signing up for FREE ACCESSClick below to learn how attain can assist your CTA in everything from back office creation and trade execution to finding a lawyer to create your D-DocNo upfront fees for managed futures funds is one of the unique benefits of a managed futures account at AttainOur alternative investment books list includes some of the most thought provoking and interesting books on alternative investmentsLearn how family offices outsource the managed futures research, due diligence, data collection, and ongoing monitoring of accounts to AttainWhat is a trading system? Who develops them, and how are they executed for client accounts? Our trading system education explains this and moreWe assist talented traders in getting their trading ideas into an automated trading system, do testing, marketing, and more

Managed Futures Benchmark Analysis

October 26, 2009

 

We haven’t updated the asset class scorecard in a while detailing how managed futures are stacking up to other asset classes in 2009, and felt this week was as good as any to lay out the numbers below. You can see that 2009 has not been as kind to managed futures as 2008 was; while stocks and hedge funds (stock investments dressed up like alternatives in our opinion) have been cruising. Speaking of stocks, we meant to reference the following Wall Street Journal article in last week’s newsletter saying now is the time to diversify out of stocks (WSJ Article: Bear Market Looms as Dow approaches 10,000 http://online.wsj.com/article/SB125348077553125915.html)

We’ve spent a lot of time in this space trumpeting managed futures great 2008 returns, and more recently, lamenting their relative struggles in 2009. But has 2009 really been that great for stocks, and that bad for managed futures? The far right column in the table below puts things into perspective – showing quite a different story when looking at the entire 2008 through 2009 (so far) period – with managed futures remaining well ahead of stocks and hedge funds despite being outperformed this year. Remember that the math can be a little deceiving after a big loss; with the near -40% loss in stocks last year requiring a gain of +67% just to get back to break-even. It would take a loss of -15% to erase the +17% managed futures gain in 2008.

 

2008

2009

2008 +2009

 

Bonds

+2.93%

-0.09%

+2.84%

 

Cash

0.08%

0.10%

0.18%

 

Commodities

-23.74%

+18.62%

-9.54%

 

Hedge Funds

-20.72%

+14.97%

-8.85%

 

Managed Futures

+17.59%

-4.20%

+12.65%

 

Real Estate

-43.12%

+12.84%

-35.82%

 

US Stocks

-38.41%

+19.26%

-26.55%

 

World Stocks

-42.08%

+27.08%

-26.40%

 

Key: All results estimates as of 9/30/09 - Managed Futures = Credit Suisse/Tremont Managed Futures Index, Cash = 13 wk T-Bill rate, Bonds = Vanguard Total Bond Market ETF, Hedge Funds = Credit Suisse/Tremont Hedge Index, Commodities – Reuters/CRB Commodity Index, Real Estate = Dow Jones Wilshire Real Estate Securities Index, World Stocks = MCSI World Index (ex USa), US Stocks = S&P 500 Index

If you are looking at the managed futures results above and saying, “wait, I’m down a lot more than -4.20% this year”, don’t panic. There are a few things in particular likely going on which are contributing to any underperformance of the managed futures index you’re experiencing. 1. The index is a sort of massive portfolio which tends to get smoothed out because of many constituents. 2. The managed futures programs you are invested in may not be designed to give you the managed futures exposure you’re looking for, and 3. Your program may actually be underperforming its benchmark.

There isn’t a lot we can do about the first item, absent being on the Forbes 500 list and diversifying amongst dozens of managed futures program. But we can do some benchmark analysis to see how we’re faring on the second two points.

We use several Managed Futures indices as benchmarks when doing internal analysis, including the NewEdge CTA Index, BarclayHedge Managed Futures Index, and Credit Suisse/Tremont Managed Futures index. For the purposes of this article, any mention of the benchmark or managed futures index refers to the Credit Suisse/Tremont managed futures index. For more on this index, click here.

Lining up with the Benchmark:

As we have mentioned in past articles (see it here: Analyzing managed Futures Exposure), if you are using the managed futures index data at the top of this article and elsewhere out there on the internet as the reason to put money into managed futures - it isn’t enough to just get into any old managed futures program – you need to consider how “like” the index your managed futures investment is.

An option selling Commodity Trading Advisor (CTA), for example, is not going to be very “like” the index. Most of the time in this newsletter we’re talking about finding the holy grail of no correlation, but in this case – if looking to replicate the crisis period performance of the managed futures indices – we’re saying you want to be as highly correlated to the index as possible.

The top 5 managed futures programs on our recommended and tracking lists (not the entire CTA universe) most highly correlated with the managed futures index over the past 36 months are the following:

Past Performance is Not Necessarily Indicative of Future Results. Data through Aug. 2009.

Program

Correl

Chesapeake Capital Corporation Diversified Program

0.837581

Welton Investment Corporation Global Directional

0.804057

Molinero Capital Management LLP Global Markets

0.8003

2100 Xenon Managed Futures Program (2X)

0.77973

Accela Capital Management Global 2X

0.760537

You will notice that several of these programs are quite large, with quite high minimums – and that is no mistake. Several of these (Chesapeake to be sure) are within the CTA Index, thus the high correlation. As an index component, they attract even more money, from those investors trying to replicate the index. With more money comes more demand, and usually higher minimums.

As a refresher, correlation is a statistical figure with values which range between -1.00 and +1.00, meant to show how inter-related two sets of data (in this case monthly % returns) are. If they have a correlation of 1.00, they are perfectly correlated, meaning when one market rises 1%, the other will do the exact same, and when one loses -1%, so will the other.  If they are at -1.00, they are exactly opposite; with one making the exact opposite amount the other loses each day, and vice versa..

But is it enough to simply be “like” the index? Wouldn’t it be nice to not just be “like” the index, but to also outperform it from time to time? The programs which have outperformed the index the most in the past 12 months are as follows:

Past Performance is Not Necessarily Indicative of Future Result. Data through Aug. 2009.

Performance in excess of CTA index, past 12 months

Over-Perf

Covenant Capital Management Optimal

62.77%

Clarke Capital Management, Inc. Worldwide

32.36%

Quantum Leap Capital Management Managed Accounts

31.52%

Emil van Essen Spread Trading-Low Minimum

25.81%

Pardo Capital Limited XT99 Diversified

24.08%

But simply outperforming the managed futures index may not be the ultimate goal either. Beating the index would be nice, but at what cost? Higher volatility, larger drawdowns? A better metric might be to see whether the risk adjusted performance (measured via Sharpe, Sterling, and Sortino ratios) of your portfolio is over/under performing the managed futures index.

It also may be easier than it looks to post higher returns than the index in the short term, because the index is a portfolio of sorts, mixing the performance of several different (although quite similar in their approach) managers. This mixing of managers creates a smoothing effect where the index is less volatile than its components, creating a scenario where most managed futures programs are more volatile when looking at them singly than the index as a whole is.

Given all this, the goal should be to match outperforming the index with being “like” (i.e correlated) the index. This is no easy feat statistically given that the more you outperform the index, the less correlated you’ll be with it. But we still want the managed futures exposure. If a program is beating the index handily by moving away from that exposure – you are achieving one goal (beating the index) at the expense of your other goal (managed futures exposure). If you bypass the goal of managed futures exposure in favor of pure returns – you are probably not going to be happy during the next 2008-like stock market crash, when your managed futures investment may not produce the stress period performance you’re looking for.

Now, the simplistic approach would be to look at the correlations of various managed futures programs versus the managed futures index, and then further filter those programs which show a high correlation by their overperformance of the benchmark – to arrive at a listing of programs which are achieving both goals of 1. Correlated with the benchmark, and 2. Outperforming the benchmark.

As touched on above, we did not want to just consider the absolute returns of various programs as they ignore the riskiness of those returns, and instead decided on using the Sharpe ratio (a risk adjusted return ratio measuring return over volatility) of the programs on our recommended and tracking lists to do a benchmark analysis.

We measured the outperformance in the Sharpe ratio of the managed futures programs on our lists across the previous 12, 36, and 60 month periods; and then took it a step further by considering the correlation coefficients between each program’s data stream and the benchmark in an attempt to arrive at a figure which measures both of the aspects important to us in analyzing a program or portfolio of programs against their benchmark.

The following three tables show the results of our benchmark analysis, showing the top 5 programs over the past 12 months, 36 months, and 5 years as ranked by their product of Sharpe improvement (amount of outperformance over the index during the listed time period) and correlation.

Programs with both a Sharpe significantly over the benchmark and a high correlation are ranked higher than programs which outperformed but are not highly correlated, or which are highly correlated but haven not outperformed the benchmark.

The resulting Top 5s show us the best of the bunch at achieving the delicate balancing act of not just achieving better risk adjusted performance than their benchmark, but also remaining highly correlated with that benchmark. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Data for listed period, ending August 31, 2009.

Past 12 Months

Sharpe Improvement

Correlation

Product

Global Advisors LP Global Commodity Systematic

                     1.28

                     0.66

                     0.85

Accela Capital Management Global 2X

                     0.81

                     0.79

                     0.64

Clarke Capital Management, Inc. Worldwide

                     0.85

                     0.74

                     0.63

NDX Capital Management Abednego

                     1.14

                     0.53

                     0.60

Integrated Managed Futures Corp. Global Investment Program

                     0.75

                     0.75

                     0.56


Past 36 Months

Sharpe Improvement

Correlation

Product

Mesirow Financial Commodities Absolute Return Strategy

                     1.37

                     0.44

                     0.61

Northfield Trading, L.P. Diversified

                     0.74

                     0.45

                     0.33

Global Advisors LP Global Commodity Systematic

                     0.52

                     0.55

                     0.29

Accela Capital Management Global 2X

                     0.33

                     0.76

                     0.25

Attain Portfolio Advisors - Strategic Diversification Program

                     0.42

                     0.48

                     0.20

 

 

Past 5 Years

Sharpe Improvement

Correlation

Product

Accela Capital Management Global 2X

                     0.33

                     0.70

                     0.23

Covenant Capital Management Original

                     0.45

                     0.53

                     0.20

Welton Investment Corporation Global Directional

                     0.28

                     0.80

                     0.14

Attain Portfolio Advisors - Strategic Diversification Program

                     0.24

                     0.44

                     0.11

RAM Management Group, Ltd. MRTP Conservative

                     0.14

                     0.20

                     0.07

 

Are you more interested in the downside? Do you want to know how a particular managed futures program is stacking up against its benchmark? If so, we’re happy to share the work that went into producing the tables above with you. We can let you know how specific programs ranked in our benchmark analysis and assist in analyzing whether a struggler in your portfolio is merely down along with the index, or is out of touch with the marketplace and should be replaced.

Simply send an email to invest@attaincapital.com with specifics on which program(s) you would like us to look at.

-       Jeff Malec

IMPORTANT RISK DISCLOSURE


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Feature | Week In Review: Stock rally takes a breather,

Overview

Activity in most sectors of commodity and index futures was mixed during the past week as another round of supportive economic signs and stronger than expected earnings gave way to late week caution from the transportation sector. Reports from railroad heads indicate that they see domestic economic growth stable, but lagging until the unemployment trend turns the corner. Earnings continued to be a supporting factor as some companies again showed better than expected results leading to support in the index futures sector.  European news was a bit concerning as a report out of the U.K. showed a shocking 0.4% drop in GDP for the 3rd quarter squashing hopes of a turn around after 5 straight quarters of negative growth.  Asian headlines remained as a market supporting factor with news of strong imports of raw materials in several countries sparking ideas of increased investment demand. The lineup of economic reports this week is again fairly light as the month of October comes to a close. Energy futures were again a fairly active sector during the past week posting new highs for 2009 in some areas on another round of favorable weekly stocks figures. RBOB Gasoline +2.92% led the way followed by Heating Oil +2.03% and Crude Oil +1.87%.  Natural Gas ended -4.11% on heavy supplies.

Commodity and Food products were mixed as weather issues continued to spark investor interest in the grain complex, with ideas of a slower economic pace sparking pressure in the other sectors. Weather concerns again led to higher prices in the grains with heavy moisture halting U.S. harvest of Soybeans and Corn and also interfering with Wheat seeding in the SRW belt. Wheat +9.83% led the way followed by Corn +6.88% and Soybeans +2.93%. The livestock arena was mixed as Live Cattle +1.86% rallied on another round of higher cash and product prices with Lean hogs -2.00% under pressure from Swine Flu concerns. The Soft arena was weak from worries that slower economic conditions could put an end to fears of a supply rationing situation. Coffee -3.99% felt the most pressure followed by Sugar -3.30%, OJ -3.09% and Cotton -1.22%.  

The metals complex ended the week higher as industry reports indicating strong demand and news that Chinese growth remained on firm ground continued to support price performance. Investors remain fixated on the metals as an inflation hedge especially with growth seen better than earlier anticipated in emerging economies. For the week Copper +6.64% led the way followed by Palladium +1.92%, Silver +1.74% Platinum +1.19% and Gold +0.47%. 

Stock Index futures ended the week in a steady to weaker fashion as ideas of slower economic growth put the brakes on the recent ascent. The earning release during the week were again fairly friendly and better than expected in most cases, but the heads of some railroads indicated the velocity of current growth could be muted until the employment situation has turned around. Economic releases remain fairly constructive although the light number of reports probably pushed the spotlight toward earnings. For the week the small caps led the weaker side of the marketplace lower with the Russell 2000 futures -1.12% followed by the Mid-Cap 400 futures -0.41%. In the Large Cap sector Dow futures ended -0.80% and S&P 500 futures closed -0.47%.The tech heavy NASDAQ futures was up +0.79% on the heels of favorable earnings from Microsoft and Amazon.     

Currency activity during the past week was again mixed as traders favored the Swiss Franc +0.92% and Euro +0.69% on safe haven buying after poor reports from the U.K., especially with a weaker 3rd quarter GDP release. The Bank of England held steady on their interest rate policies and asset purchase programs hampering the British Pound -0.32%. The U.S. Dollar Index -0.22% and Japanese Yen -.28% found light pressure from spreading. The rate sector again was pressured from poor auction performances with 30-year Bond futures ending -0.14% followed by 10-year Note futures -0.72%.       

Managed Futures

While the equity markets “may” be approaching a market top, the question is how will traditional Multi-Market CTAs adjust to the commensurate run up that has also occurred in commodity markets?  So far in October, many Multi-Market managers have sprinted out ahead and are now working to hang on to the early gains.  The top performer thus far in October has been Futures Truth Sam 101 which has is ahead an estimated +5.82%.  Sam 101 and its parent strategy Futures Truth MS4 (+2.34% in October) utilize the counter trend-entry methodology which has benefitted them in the current swings.

Other top performing Multi-Market estimates are as follows: Attain Strategic Diversification +0.40%, Dominion Capital +2.16%, GT Capital +0.76%, Integrated Managed Futures Concentrated +1.48%, Mesirow Absolute Return +0.08%, Quantum Leap +2.47%, Robinson Langley +0.78%, and Sequential Capital +0.48%.

Multi-Market managers who are in the red so far in October include:  Attain Modified -0.51%, Clarke Global Basic -8.76%, Clarke Global Magnum -13.71%, Dighton Capital -1.90%, DMH Capital -0.76%, Hoffman Asset -2.69%, Lone Wolf -3.72%, and Mesirow Low Volatility -0.09%.

Most Option Trading managers have enjoyed the oscillation in the markets and have built up a substantial amount of open trade equity on their current positions.  In particular, FCI OSS is ahead approximately 4% and for many clients who experienced the rough drawdown last year this month brings many of these accounts close to new highs.  The majority of the other option trading managers are also ahead for the month including ACE + 1.60%, Raithel +1.33%, Crescent Bay PSI + 1.01%, Cervino Diversified 2X +.95% and Cervino Diversified + .59%. On the losing side, FCI CPP is currently down -2.48% for the month.

Specialty managers have mixed performance in October with spread trader Emil Van Essen up +1.71 % for the month after many open spread positions moved in their favor last week, while hog trader NDX Shadrach is down -1.80% for the month.

In short-term index trading, Paskewitz Asset Management Contrarian 3X Stock Index stands at +1.34% est for the month while yield curve trader Typhon Capital Management Drakon Yield curve is -.19% est.

Trading Systems 

A few hiccups for the day trading systems were offset by some standout performances from the swing systems last week. Day trading programs struggled early in the week particularly on Tuesday and despite a last ditch effort on Friday most finished the week with moderate losses. Swing trading programs benefited from several gap openings in both directions throughout the week and the majority were able to add to the bottom line but one program was in a league of its own. 

Starting with the swing trading systems, Bam 90 ES carried the other programs on its shoulders last week up +$4,070 for the week. The program flipped its position four times last week and doubled down on every position by taking at least two contracts per trade. Strategic SP and Strategic ES started the week on the right foot only to follow it up with losing trades mid-week, then finished the week strong for a net result of +$625 and +$60 respectively. Polaris ES and Jaws US 400 each were limited to just one trade last week for +$495 and -$622.50 respectively.

Changing time frames, Upper Hand ES was the only day trading system to finish the week above water +$787.91. BetaCon 4/1 ESX and Freedom ES each had one small losing trade on Tuesday for -€40 and -$167.50 respectively. Compass SP made back some of the losses it incurred on Tuesday with a respectable trade on Friday but the net result for the week was -$306.90. Clipper ERL was a bit more active with four trades for -$700 while PSI ERL finished down -$940 on three trades. Moving into larger losses, Waugh ERL had four consecutive losses for -$1,702.73 while Rayo Plus Dax traded every day last week for a setback of -€2,300.

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.