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2010 Managed Futures Outlook
January 11, 2010
What a difference a year makes! As you'll see in the table below, Managed Futures as an asset class went from first to worst last year, moving the opposite direction of stocks, long only commodities, Real Estate, and Hedge Funds in 2009 after handily beating them in 2008 during the financial crisis.
The good news for managed futures is that its poor performance isn't as bad as the other asset classes when they hit the skids - losing only a portion of what was gained in 2008; and that its 10 year performance is still at the head of the class despite the down year. (If you are excited about this recent stock rally, check the 10yr performance of US and World Stocks in the table below for a reality check)
Key: YTD performance numbers are estimates as of 12/31/09. Managed Futures = Credit Suisse/Tremont Managed Futures Index, Cash = 3 mo T-Bill rate, Bonds = Vanguard Total Bond Market ETF/Citi World Bond Index for 10yr data, 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
One bit of good news right off the bat (with the obligatory disclaimer that past performance is not necessarily indicative of future results – if that wasn’t abundantly clear from the table above) is that there have never been consecutive losing years for any of the three major CTA indices (NewEdge, Tremont, and BarclayHedge). In fact, the average annual performance in the year following down years across the Tremont and BarclayHedge indices (this was the first ever losing year for the Newedge index) has been +9.36%, which is 1.5 times greater than the average annual gain across all years for these indices.
Where things went wrong in 2009
Before we get to what we can expect in 2010, we need to understand what went wrong in 2009.
After speaking with several of the commodity trading advisors we work with and witnessing the trading and market activity firsthand throughout the year, what we saw go wrong wasn’t a single thing – but rather three separate tough market environments all happening to rear their ugly heads at the same time.
While any single poor environment could be overcome by diversification amongst various market sectors, strategy types, and so on; the simultaneous presence of three different performance draining scenarios proved too much for most managers, and the managed futures asset class as a whole, to overcome.
The three culprits in 2009 as we see it were the following:
- A sharp drop in Global Volatility off of the record highs last year
- Continued high cross-correlations amongst previously non correlated markets (especially the inverse relationship between nearly every other asset in the world and the US Dollar)
- A complete lack of trading on market fundamentals (especially in physical commodities)
It is no coincidence that we listed the massive decrease in volatility off of the record levels seen in 2008 as the number one issue above, and that’s because many managed futures investors account balances look like the graph below showing the volatility of the CRB Index (a popular commodity index) over the past three years.
This is because nearly all managed futures programs, besides option sellers, are betting in one manner or another on volatility expanding in the markets they follow. They are technically positive gamma strategies which are betting small amounts of money on large moves (in either direction) occurring in the near future.
Now, managed futures do not need volatility to expand exponentially as it did in the second half of 2008, and in fact the more normal course of things is for volatility to cycle between expansion and contraction in different markets every three to six months. We’ve all heard of the old trading adage that trends emerge from congestion patterns or periods – and this is just another way of saying that volatility expands after it contracts.
It is rare to see volatility keep expanding or contracting for more than six months or so – but that is exactly what we’ve seen over the past two years; with volatility exploding to the upside from Aug. 2007 or so through Dec 08, and then falling off a cliff in 2009 as it returned to pre-crisis levels.
Managed futures investing, with its general strategy of taking numerous, but small, losing trades – in exchange for the possibility of less frequent, but large winning trades – is normally akin to the old saying two steps forward, 1 step back; with the steps forward representing being invested during moves higher in volatility, and the steps backwards representing the times when you lose money during low volatility times. (More correctly, it would probably be something like 3 step backwards, then 5 or 6 steps forwards, but you get the idea). But the 2008 volatility expansion was like suddenly taking 20 steps forward without any steps backwards….That was great while it lasted, but in hindsight created an unfavorable environment in 2009 where all the steps were backwards as volatility reverted to its historical mean.
The good news for 2010 is that the volatility of the CRB Index appears to be heading back into its ‘normal’ range, where it can cycle back and forth between expanding and contracting volatility. It is also important to note that this is an index of many markets, meaning that a low reading may not have to do with volatility, but with offsetting directional moves by different commodities.
And it wasn’t just commodity markets. Modern managed futures programs trade much more than just the physical commodities represented by the CRB index, and we therefore compared the volatility in forty four different futures markets across the stock index (12), bond (8), currency (6), grain (6), energy (3), metals (3), softs (3), and meat (3) sectors. The results were nearly identical in each case to what was seen on the CRB Index alone, with market after market seeing lower volatility in 2009.
As can be seen in the chart below detailing the annual increase or decrease in the 250 day Average True Range reading in each of 44 markets as compared to that same reading during the previous year – all 44 markets we track (the main commodity markets we consider ‘tradable’) for this study saw increases in their volatility in 2008 (all 44, which is unheard of). In contrast, all but 4 markets (Sugar, Gilt, Hogs, and Natural Gas the exceptions) have seen their volatility decrease this year.
We do not expect this lower volatility trend to continue in the new year – for one, there isn’t a whole lot of room remaining on the downside for many of these markets volatility readings – with many having already dropped -35% to -60% from their 2008 levels. But perhaps more significantly, it isn’t normal to have every market (be it stocks, bonds, metals, energies, and so on) either be in a volatility expansion or volatility contraction as has been seen in the last two years. As mentioned earlier – the more normal course of events is for roughly 50% of markets to see volatility expanding from one year to the next while the other half is seeing less volatility than the previous year. With the spike up, and free fall down in volatility having already occurred over the past two years– 2010 is now set up for a return to the more normal expansion/contraction cycle which managed futures have historically performed well in.
Why is a decrease in volatility bad for most managed futures programs?
You’ll hear a lot about this decreasing volatility in 2009 from different managers and in this report – and it is important to understand why this decreasing volatility causes losses, and why increasing volatility can produce gains for managed futures.
In its simplest form - This decrease in volatility causes choppy conditions – volatility is simply a mathematical measurement of the standard (read: normal) deviation (read: difference) between a market’s prices and its average price. A very volatile market will have prices very far from its average, while a low volatility market will have prices which are not as far from their average – or which keep moving up and down on either side of the average.
When we consider the movement of the CRB index in 2008 and 2009 in relation to its 80 day moving average, why expanding volatility matters to managed futures investors (excepting option sellers) becomes clearer. You can see from the stats below that the CRB index only crossed its 80 day moving average a single time in 2008, but has done so 19 times in 2009. This tells us that the decreasing volatility has meant prices more closely bunched around their average.
#times crossing 80 day Moving Avg
Managed futures managers need to use something to signal when to exit a trade which is moving against them, and a common indicator they use is a moving average of prices. In its simplest sense, when a price series retraces back to its moving average, that means its momentum to one side or the other has ended. If you think a market is going higher, and it comes back below its moving average, that is a technical signal that you were wrong.
Now, being wrong isn’t all that bad if you control your risk and if for every three or four times you are wrong you are right in a much bigger way. You can see from the charts below that while commodity prices have been trending upwards in 2009 sense their March lows – it has been an uptrend fraught with uncertainty. The decreasing volatility has meant prices haven’t strayed too far from their moving average – and have spent a good amount of time crisscrossing back and forth across that moving average – signaling to systematic traders that the uptrend is no longer valid.
Contrast the above with the same index and moving average in 2008 in the chart below. Using a simple systematic model as an example which buys or sells on a 30 day high/low, and exits that position on a move below/above the 80 day moving average – we can see how the decreasing volatility has caused some headaches for systematic multi-market profgrams.
2008 saw a perfect environment, where trends were well defined and stayed well above/below their moving average, meaning managed futures programs which hopped on board the trend in one manner or the other didn’t have a lot of tough decisions on whether the markets had finished their moves or not. 2009, in contrast, has seen every breakout to the upside followed by a relatively quick retracement back to the moving average – before repeating the whole thing again with a new breakout to the upside, followed by a new retracement to the moving average.
This idea that markets weren’t trending enough is also supported by the following data, which shows that 2009 saw the lowest number of trending days across six major futures markets (S&P 500, Crude Oil, Soybeans, US Dollar, 30yr Bonds, and Copper) in the past 10 years. This statistic appears to have a high correlation with managed futures performance, with the previous low in the number of trending days in 2005 coinciding with the only other losing year for the Tremont Managed Futures index.
Where does volatility go in 2010?
The big question of course, is where does volatility (and its effect on the “trendiness” of markets) go from here. As mentioned earlier – we see a more normal 50/50 or 40/60 split between markets seeing increasing volatility and those seeing decreasing volatility in 2010. If that comes to pass, it should mean a higher number of trending days across those markets which are seeing expanding volatility, in turn pushing up the average trending days number statistic in our chart above – which
The second effect of a more normal 40% to 50% of markets seeing an increase in volatility will be less markets exhibiting a high amount of uncertainty causing moving average cross overs.
One thing we do see in 2010 is the potential for some large spikes in stock index and bond volatility. We simply don’t think the financial crisis and all of the unitended consequences of the bailouts, guarantees, and huge debt taken on by the world’s governments has completely played out yet.
The VIX (volatility index) indicator is commonly used to forecast when investors have become complacent enough that some unforeseen event will spook them into driving markets lower (volatility higher), and its current reading of under 20 is the lowest its been in 16+ months, back to the pre-crisis levels in August of 2008. It doesn’t have too much further to fall before its back at its historical lows around 9; which would be a great signal that the next shoe is about to drop.
Some possible events which could trigger a volatility spike back up to 30 or 45 on the VIX include the following:
· US Fed hiking interest rates (or even hinting they might)
· Sovereign Debt Problem (Japan, Spain, or even smaller country defaulting)
· Large Bank/Hedge Fund Failure (US or abroad)
· Chinese declaration suspending US Debt purchases
· Surprise Event (Hurricane, Terrorist Attack)
Any of these happening in the new year could send stocks quickly back down to the 900 to 1000 level, which would wreak havoc on stock index based option selling managed futures programs; and even cause some pain for diversified option sellers should the volatility spike spill over into markets like Crude Oil and the US Dollar.
As bad as 2009 was for those managed futures programs relying on expanding volatility, it was that good for those which rely on contracting volatility (option sellers). And as good as 2010 can be for the long volatility programs, it could be that dangerous for short volatility programs. We expect 2010 will be somewhere in the middle of 2008 and 2009, meaning option sellers won’t have the steadily decreasing volatility they’ve enjoyed over the past 12-14 months and could be in for some drawdown periods in the coming year (making it as important as ever to understand the risk management capabilities of any manager trading options on your behalf, which can’t be done unless they were around in 2007 and 2008)
The US Dollar/Commodity Link:
One issue mentioned time and again during the past year was the ever increasing link between the US Dollar and nearly every other asset. The trade for many was to buy Crude, Soybeans, Gold, and so on whenever the US Dollar weakened, and sell the same when the Dollar rebounded.
This link caused for an odd environment where diversification lost much of its effectiveness. In the past, a portfolio long Soybeans, long Gold, long the Euro Currency, long Crude Oil, and long the S&P 500 would have been considered diversified. But 2009 changed the game for most of the year, making any long position in an asset priced in US Dollars highly correlated with any other long position. So Gold and Crude Oil would rise and fall in tandem depending on what the Dollar did, as would markets as diverse as Soybeans and S&Ps.
The further the Dollar declined, the more and more every managed futures portfolio just became one big long trade on everything except the US Dollar (or looked at another way became one big short trade on the US Dollar).
Most managed futures programs were late to this party, unfortunately – based mainly on the fact that the grain markets resisted this relationship until later in the year (most grains were heading lower as the Dollar headed lower through Sep.) , and then started out of nowhere trading in lockstep with the Dollar for the remainder of the year. Once most managed futures programs were on board with the short Dollar/long everything else trade – it looked like a good thing and was the cause of the best month of the year for managed futures driving gains in November. But a sharp 5% rebound in the US Dollar in December (partly our fault for starting to write the A rising US Dollar NOT what managed futures need right now in the beginning of December), caused the largest losses of the year for many managed futures programs.
Further, this link caused issues in 2009 for discretionary traders because markets stopped trading off of fundamentals and instead merely went up when the Dollar went down and down when the Dollar went up. Just imagine a trader who places a bet on Soybeans falling, for example, based on reports of higher acreage planted, but the market simply ignoring those statistics and instead moving higher because the Dollar is falling – and you can start to see some of the frustration and issues surrounding this issue in 2009.
The Short US Dollar/Long everything else trade in 2010:
We believe the short US Dollar/long everything else trade will become less pronouced in 2010, as evidenced already by the one month correlation (20 trading day) having risen significantly off of its end of October lows. Another sign that this relationship is unwinding are markets such as Copper starting to move on their own, as evidenced by Copper being at its highest levels since August of 2008 despite the US Dollar having rallied 5% off its 2009 low.
If the low in the commodity/US Dollar correlation can hold and the correlation between commodities (and everything else) can return to a more normal 0.00 to -0.40 range; its unwinding will be a huge boost to managed futures performance.
As touched on earlier, this relationship took away the risk management properties of diversificaiton for many managed futures programs in 2010, with the Short US Dollar/long everything else link causing many managed futures portfolios to take on the profile of having one large bet on a single trade, versus their design of spreading out many low risk bets across many markets.
Would you rather risk $1,000 on 50 trades which will have different outcomes, or bet $50,000 on a single trade and live or die by its outcome. Because long volatility programs are designed to make more than they risk on a trade when they do catch a winner - the former case allows you to be wrong more often than right and still make money, while the latter case requires you to be right more often than not to make any money.
Politics and Government Intervention:
Someone somewhere along the line had the catchy phrase – “extraordinary times call for extraordinary measures”, and some of the extraordinary measures taken by governments around the world to protect against another Great Depression is the third and final issue affecting 2009 performance.
While extraordinary times and extraordinary measures may sell books or make for a good movie, they usually don’t sit well with managed futures programs, and especially systematic ones. Most managed futures programs are reactive, meaning they analyze price activity and decide where the market is likely to go based on that activity.
Such reactive trading does best when price discovery is natural and driven through the market process (meaning when investors and speculators bet on the market moving one way or another) Reactive trading does not do well when price discovery is affected by politics and government intervention (when price is effectively mandated instead of discovered), and such was unfortunately the case in 2009.
A great example of such intervention and the issues it caused was on March 18th of 2009, when the US Fed announced that they would be dramatically increasing their quantitative easing through the purchase of hundreds of billions of US Treasuries. This was the first time in 40 years that the Fed would purchase US Bonds, and it sure spooked the bond market – with bond prices spiking 7% the day of the announcement.
The immediate addition of $300 Billion in additional demand was completely outside of the normal supply/demand picture for bonds, and thus caused an artificial spike higher. That in itself wouldn’t necessarily be a problem – but coupled with the decreasing volatility – this spike was all there was of this move, as prices slowly crawled back to their pre-announcement levels just over a month later. Such severe moves, when based on so called “normal’ influences usually signal the market has broken out and will be continuing in that direction – and many managed futures programs did take it as just that, only to see the false demand result in a false breakout.
Politics and Intervention in 2010:
Based in part on our view that volatility is likely to spike in bonds and stock indices because of hangover effects and unintended consequences of the extraordinary measures already taken – we don’t see this poor environment of 2009 subsiding completely in 2010.
Sure, the further we move from the financial crisis and edge of the cliff the global financial system was supposedly on – the less likely that governments will have to meddle in markets; but at the same time there is always the risk of such intervention.
I personally don’t agree that this intervention was a main cause of the poor 2009 performance, and thus don’t see problems for managed futures in 2010 if such intervention continues. In our opinion, such intervention and politics moving markets has always been present. Aren’t interest rate cuts and hikes, Chinese bans on US Hogs, and Japanese currency intervention the same thing? Those have been around a lot longer than those charged with “fixing” the global economy – and managed futures have been able to handle them just fine in the past.
In closing, we see an end to the across the board volatility decline as global markets return to a more normal 50/50 split between markets seeing volatility increases and volatility decreases. This should be to the benefit of nearly all managed futures programs – as the number of trending days across all markets will increase, and moving average cross overs will decrease (meaning less false breakouts and quick retracements), but especially to the systematic programs which were amongst those who struggled most in 2009. At the same time, while we don’t see volatility rising across the board, we do believe there will be volatility spikes in stock indices and bonds due to more financial crisis fallout, hurting non diversified option selling programs.
We see the continued unwinding of the Short US Dollar/Long everything else trade which started at the end of October. This will allow markets to trade on their own characteristics (helping discretionary traders who rely on fundamentals), and re-introduce the risk offsetting properties of market diversification (helping multi-market systematic programs).
Finally, we see government intervention continuing in 2010, but don’t believe that it will negatively impact managed futures performance – just as outside forces such as the Fed, currency interventions, hurricanes, and terrorist attacks haven’t been detrimental in the past.
If we’re wrong, and volatility continues to steadily decline and markets continue to trade based off the US Dollar an political intervention rather than their own supply/demand structure – option selling and short term strategies (1 to 2 days) are where you want to be.
Overall, 2010 represents one of the best times in the past 10 years to escape the ‘invest at the highs, get out at the lows’ pattern 90% of all investors are stuck in. You have an asset class which has proven itself as a great diversifier (managed futures) coming off one of its worst years in history, coupled with the traditional stock and bond markets coming off one of their best years in history. Seems to me this would be a great time to book some profits (get out at the top) in stocks, and invest in a quality managed futures program currently in drawdown (invest at the bottom). Who knows what the next 10 years will look like, but if there’s even a chance stocks will be flat again, you owe it to yourself to search out alternatives.
Within managed futures, we don’t see any one strategy type which is guaranteed to be heads and tails above the rest, and as such continue to recommend a portfolio approach of diversifying between non correlated (both statically and fundamentally) strategy types; with both short volatility and long volatility programs, short term and long term hold times, and single market specialty and multi market diversified traders.
To see how some of these different portfolio held up in 2009 and are likely to perform in the new year, give us a call at 800.311.1145, or build your own portfolio of different programs using the Custom Portfolio Tool on Attain’s website. (Click Here)
- Jeff Malec, CAIA
Commentary from Outside of Attain:
We asked several of the commodity trading advisors we work with for their opinions on what 2010 will look like for managed futures as an asset class, and received the following commentary from
Our outlook for both the Dominion Sapphire Program and the entire managed futures space for 2010 is very favorable. 2009…contained the double whammy of across the board volatility declines combined with erratic, politically influenced markets. This was about as difficult a market environment I have seen in my 22 years of managing money, [and] I believe 2010 will fall somewhere in between [the great 2008 environment and the poor 2010 one]. Political influences will continue to be discounted and individual markets will begin to express their own volatility trends rather than all volatility measurements being correlated.
This [positive 2010 outlook] is based on our above view of volatility normalization and simple mean reversion. The post-crises global economies will need price discovery, and this generally leads to trends. The competing inflation/deflation arguments will create trading opportunities for short-term traders.
[In stocks] The rally (dead-cat bounce) off the March 09’ lows is unsustainable. If you are long equities, expect this run to end sometime in the first quarter and look for an exit. After a decade of zero returns in stocks (in reality you have lost half of your money due to inflation and taxes. Although every bone in our body says the dollar must decline, the reality of the situation is that for the dollar to decline, other major currencies must appreciate. It would not surprise us if the dollar is higher against other major currencies in 2010 (with the exception of the Aussie Dollar and the Canadian Dollar).
By the end of the year, or early 2011, the deleveraging in the economy will have substantially run its course and the effect of the printing presses will begin to rumble through the fixed income markets sending bonds lower and yields higher. Without robust economic growth, it will look and feel like the stagflation of the 70’s.
- Scott Foster, Dominion Capital (view performance)
Simply put, we expect more of the same for 2010. Sadly, events in the pipeline that have created the economic uncertainty (that are the major causes preventing long-term trends to mature and develop) continue to go unresolved. Specifically, issues related directly or indirectly to the long-term value of the USD are still in limbo. Colossal spending programs and legislature tied to government spending will continue to contribute to USD uncertainty until they are resolved one way or another. Skyrocketing US debt will be a major driver of interest rates in 2010.
Make no mistake, there will be trend-based opportunities in 2010, but they may not be as long-term in nature [as what was seen in 2008]. Personally, I think we will see the USD test new lows, (and commodity prices rise as a result) gold will test new highs, inflation fears will pick up and the economy in general enters a new period of malaise.
Jim Anderson – Clarke Capital (view performance)
Financial Commodity Investments (FCI):
FCI sees…intermittent periods of extreme volatility again for the next few years. We forecast the USD (US Dollar) to be up for 2010, and we see that both the commodities and equities market will have up and down swings for the year, with all in all, a down year for “Buy and Hold” and trend [following] investors. There will be many unknown and unforecasted factors that will affect the markets, [and] during these periods of volatility, risk management will be of key importance. [Pattern recognition] and trend [following] systems will not necessarily infer future directions of these unchartered markets.
We believe that there is going to be lots of choppiness in the markets next year. Trend following systems are going to get whipsawed as the markets are going to have lots on channeling events as underlying commodities will be within extreme pricing ranges.
Craig Kendall – FCI (view performance)
Quantum Leap Capital Mgmt:
Many markets appear overextended and due for an important reversal (With Gold and the Euro seems like it has already started, stocks aren´t there yet)…. The majority of people believe that the stock market will continue rising in 2010, I personally believe that we will see a significant correction at some point, same for the Dollar and Gold (much more so than we have seen). Where exactly things will end by 2010 is perhaps not as important as understanding that more likely than not, it’s bound to be a bumpy ride, with strong moves in both directions during the year. For Managed Futures in general, I think 2010 will be better than 2009, but not as good as 2008. One thing that is blatantly clear however is that the long-only stock strategy of the past just doesn´t make much sense, again when comparing the risk/reward it offers over time when compared to managed futures
Alejandro Diego – Quantum Leap (view performance)
The Bornhoft Group Corporation
In terms of where the markets are going; I honestly don’t know. Nobody has a crystal ball which will tell them what government spending will occur / not occur, if there will be a terrorist attack, and so on. The only thing we can really know for sure is that over the long term markets will continue to move in 2 directions – going both up and down. Most investors portfolios are only set up to capture one direction (up), and the question people should be compelled to ask is how they can set up their portfolio in 2010 and beyond to take advantage of both directions. The challenge for investors is to figure out ways to embrace and capitalize on different market conditions versus having to rely on buy and hold, or buy and hope investments that only make money when markets go up. In my two decades of investment experience, and as covered in my CME webinar titled “A Former Institutional Investor’s Perspective on Managed Futures” (click here to view), Managed Futures is one of the primary vehicles professional investors should consider using to capitalize on the fact that markets move in two directions, and to achieve better risk adjusted returns. The evidence is compelling.
Tom O’Donnell, Partner - The Bornhoft Group Corporation
IMPORTANT RISK DISCLOSURE
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Feature | Week In Review: Dollar Rally sends managed futures to monthly loss, as stocks power higher
The final month of 2009 saw mixed market activity for most sectors with end of the year position squaring the main feature, although another layer of favorable U.S. economic news did prompt a rally in the U.S. greenback which also aided stock index futures. The constructive end to earnings reports in the U.S. also helped support price activity as did news that Dubai debt trouble had subsided after getting help from its neighbor and making good on a note that came due in mid December. Economic reports were again construed as improving as several releases pointed to renewed manufacturing and building growth especially in Asia, although numbers in some European countries did miss early estimates. The monthly FOMC results were more of the same as they held rates steady with indications that this might be the norm for the time being. Marketplace fixation on the potential for inflation seemed to subside a bit with the improving activity for the U.S. Dollar, although emerging market growth seem to keep industrial commodities as a trading favorite for price appreciation. The Energy complex was one sector that benefitted from such favoritism along with news of a possible squabble for oil between Iran and Iraq and weather demand. For the month Natural Gas futures +13.64% led the rally in the complex, followed by Heating Oil futures +1.81%, RBOB Gasoline futures +1.13% and Crude Oil futures +0.83%.
U.S. stock index futures posted another decent rally to end the year which was led by strong news from the finishing touches of 3rd quarter earnings reports. Stronger than expected economic data also aided the move to highs 1+ year highs as did the results from the FOMC meeting indicating rates would remain low for an extended period. The Russell 2000 futures +8.17% led the way up followed by the Mid-Cap 400 futures +6.32%, NASDAQ 100 futures +5.28%, S&P 500 futures +1.89% and Dow Jones futures +0.91%.
The Metals complex was a mixed bag last month with the precious metals losing upside steam on stronger indications from the U.S. economy with Industrials finding support from a strong manufacturing sector in emerging economies. Palladium +11.56% led the way higher followed by Copper +5.34% and Platinum +0.60%. Silver shed -9.07% and Gold ended -7.28%.
The Food and Ag sectors were mostly mixed in December as supply/demand issues regarding weather sparked support in some areas and pressured other issues. Activity in the grains saw Wheat -8.02% as planting delay worries subsided for SRW wheat with Soybeans -1.89% and Corn -0.72% following suit. The livestock sector was mixed with Lean Hogs -1.89% on waning demand and Live Cattle +.52% on weather worries. Soft commodities had a mixed feature of weather worries and better demand ideas with Sugar +19.04%, OJ +8.17%, Cotton +1.23% and Cocoa +0.92%. Coffee -4.26% was under pressure from improving Southern Hemisphere weather.
Market activity in currency futures for December was all about the rally in the U.S. Dollar Index +4.39% as better than expected economic reports sparked ideas of a stronger recovery for the coming months. The rally in the greenback led to pressure in the continentals with Euro futures -4.49%leading the way down followed by Swiss Franc futures -2.83% and British Pound futures -1.65%. The Japanese Yen -7.08% was hampered by poor economic readings and worries the new government stabilization plan may not aid current conditions.
December price activity in the Bond markets was very soft as improving economic conditions help spark a steep sell-off. Poor government auctions results also hampered price activity with the 30-Year Bonds finishing -5.82% and the 10-Year Notes -3.49%.
Option trading managers rounded out a comeback year for the ages with another month of positive returns, bring programs such as Financial Commodity Investments (FCI) Option Selling Strategy back to all time highs for some account. FCI was 2009’s top performer with an estimated gain +38.91% - congratulations to Craig Kendall and his team for their success in 2009.
As for December, Ace Investment Strategist was the top performing Option Trading manager with an estimated gain of +6.17% which leaves the program ahead approximately +31% for 2009 following a disastrous 2008 where the program lost 61.27%. The program’s rebound is encouraging and will be one that we continue to monitor closely for signs of continued / improved risk management on their stock index trading.
Other Option Trading December estimates are as follows: Cervino Diversified Options +0.76%, Cervino Diversified 2x +1.57%, Crescent Bay PSI +1.74%, Crescent Bay BVP +4.21%, FCI OSS +2.96%, FCI CPP +1.66%, HB Capital +2.59%, Oak Investment Group -2.17%, and Raithel Investments +1.88%.
Elsewhere, it was a tough end to an even tougher year for multi market CTA’s. A global sell off from early in the month as the US Dollar rallied wreaked havoc on multi market portfolios which are still biased to the long side. The good news is that it was a light volume move and the markets bounced back and then some so far in January. For the month the NewEdge CTA Index fell -3.178% and finished the year down -4.23%. The top performing multi market manager in December was Dighton Capital USA Aggressive Futures program which was up an estimated +11.37% this past month. Most of the profits came from a long Dollar Index trade that is a great example of the manager’s tendency to enter counter trend positions during drastic market moves. In this case, Dighton went long Dollar when most others were selling and their persistence and patience paid off with a nice long trade.
Other profitable multi market managers in December include DMH at +2.00% est., GT Capital Management +1.51% est., Robinson-Langley +1.03% est., and Dominion Capital Management Sapphire +1.21% est.
The remainder of the multi market managers tracked by Attain finished December in the red with some managers getting hit a little harder than others. Those that struggled this past month include Mesirow Financial Commodities Low Volatility -0.38%, Sequential Capital Management -0.47%, Quantum Leap Capital Management -0.76%, Mesirow Financial Commodities Absolute Return -1.04%, Futures Truth MS4 -1.50%, 2100 Xenon Managed Futures (2x) Program -3.26% est., Attain Portfolio Advisors Strategic Diversification Program -5.18%, Integrated Asset Management -5.74% est., Hoffman Asset Management -6.00% est., Futures Truth SAM 101 -6.00% est., Clarke Capital Global Basic -11.04% est., Clarke Capital Worldwide -13.74% est., APA Modified Program -13.75% est., and Clarke Capital Global Magnum -15.37% est.
Specialty Trading managers have very seen little movement over the past few months and ended the year with more of the same. The good news is that we are beginning to see some new positions of out of the agriculture managers which could lead to opportunities in the New Year? December’s top performer was Rosetta Capital Management +2.06%. Despite the gain, Rosetta looks to have ended the year down approximately -3% after returning 15.48% to investors in 2008.
Other Specialty manager estimates for December are as follows: Emil Van Essen -0.60%, NDX Abednego -0.04% and NDX Shadrach +0.18%
Short Term Index trading managers had a great month. Pere Trading Group LLC finished the year strong with returns of +11.02%, while Paskewitz Asset Management Contrarian 3X Stock Index was up +1.24% est.
December was a challenging month for most trading systems as volatility continued to evaporate from the futures markets particularly towards the end of the month. Day trading systems underperformed their swing trading counterparts as a whole.
Beginning with the swing trading systems, there were a few diamonds in the rough in December, specifically BAM 90 ES which finished the month up +$5,825. Jaws US 400 also had a stellar performance up +$3,133.36 for the month on just two closed out trades. Other winning programs for the month included Jaws US 60 +$508.21, Polaris ES +$450, Waugh Swing ES +$277.50 and Bounce ERL +$70.
Swing systems unable to break out of the red include Strategic SP -$2,725, Ultramini ES -$942.50, Bounce EMD -$755, AG Mechwarrior ES -$622.50 and Strategic ES -$17.50.
Shifting over to the day trading programs, positive monthly returns were few and far between. The only two day trading systems to finish the month in the black were ATB TrendyBalance v2 Dax +€372.50 and Clipper ERL +$210. Losing programs include BetaCon 4/1 ESX -$210, Freedom ES -$290, PSI! ERL -$1,32.50, Rayo Plus -€4,087.50, Upper Hand ES -$162.50 and Waugh ERL -$650.47.
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.