Sign Up

Managed futures newsletter

Sign up now to receive our   free newsletter

Click here to gain free access. Build portfolios, set watchlists, and view more data and statistics.

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

2010 CTA by CTA Reviews on 53 Managed Futures Programs

January 24, 2011


We covered the 2010 performance and 2011 outlook of managed futures as an asset class in our last newsletter (2011 Managed Futures Outlook), and this week get into specifics on many of the programs Attain clients are invested in.

Where 2009 was a struggle for nearly every managed futures category (except option selling and short term trading), 2010 saw an improved managed futures environment with trending markets and some outlier moves appearing in the latter half of the year benefitting traditional trend following programs as well as old style discretionary traders focusing on the agriculture markets (and ironically hurting the very short term and option traders who did well the year prior).

Generally speaking – it was a good year for multi-market systematic programs (the bulk of managed futures investments), a down year for short term programs, an up year for discretionary traders and spread traders, and a mixed bag for specialty managers,  stock index traders, and option selling managed futures programs.

There were outright winners (Accela, Clarke Worldwide, Rosetta, and Dighton), outright losers (HB Capital, Paskewitz, Dominion, & Clarke Global Basic), and a few managers (Emil Van Essen, FCI, 2100 Xenon) positive, yet below what they would have hoped for (and below the managed futures benchmarks).

This week's newsletter gives a brief review of every single managed futures program actively tracked at Attain. When we started this exercise back in 2008 we wrote reviews on 22 separate managers. For 2010, this review is up to 35 different managers and 53 programs, across seven different trading categories. Next year, we’re hopeful to have full due diligence and tracking on 50 or more managers.

The reviews are done alphabetically within the main categories (option sellers, discretionary, multi-market, etc.) we track and only include those managers with minimums of $3 million or less.


Important Risk Disclosure

Managed futures accounts can be subject to substantial charges for management and advisory fees. The performance numbers outlined below include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Regulations require managed futures performance to be calculated as a composite of all accounts of non qualified eligible persons trading the same program. This 'averaging' of individual account performance can cause individual performance to be higher or lower than the reported composite performance depending on several factors, including commission and fee levels, investment amount and duration. The statistics may show rates of return for only the listed period (i.e 2008, 2009), where rates of return for periods longer than the period shown may be higher or lower than those shown. Past performance is not necessarily indicative of future results.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFTC rules. The disclosure document contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investors are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs. Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document are considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.


---------------------------------  Systematic Multi-Market  -----------------------------------------

For 2010, we split up the Multi-Market Systematic category into two categories; long and short term, due to the large performance deviations between these two styles of systematic multi-market trading.

Longer-term systematic traders (avg hold time > 15 days) outperformed their shorter-term counterparts significantly in 2010 as trendfollowing strategies benefited from trending prices in commodities, stocks, currencies, and bonds, as well as low volatility across each market sector (thank you, Mr. Bernanke). In essence, it was an easy one-way trade for most programs, as systems were able to jump on trends without experiencing the typical volatility seen in markets like precious metals, grains, softs, and stock index future. However, despite the impressive returns of some multi-market traders, the sector as a whole had a fairly average year in 2010; resulting in a number of programs remaining below their 2008 high water marks. We are optimistic that these programs will have an even more impressive year in 2011 on the back of a broad volatility expansion and finally get back to new equity highs.  

Accela Capital Management: performance

Accela Capital Mangement Global Diversified was a new systematic multi-market CTA to Attain in 2010. Accela is one of the few multi-market traders to have posted positive returns in each of the last three years, and the only program that we know of that had a better year of trading in 2010 than in 2008. The manager of the Accela programs, Mr. William (Alex) Spies, credits the program’s success to the firm’s strategy of having three lowly correlated systems (trend following, pattern recognition, and short-term momentum) executing across a wide set of markets.

At approximately 85 markets across eight market sectors, Accela has the largest amount of market exposure out of any systematic trader tracked at Attain. This strategy of trading nearly every futures market paid off in 2010, as the program caught nearly all major market moves, including those in commodities, interest rates, foreign currencies, grains, equities (stock index futures), and livestock markets. Accela posted returns of 20.02% with a peak-to-valley drawdown of 7.08% in 2010.  

Of course, simply having the markets on your watchlist doesn’t bring profits, there are the details of when to get in, how much to risk, and so on. But Mr. Spies and his team impress with their experience on this front – with Mr. Spies having first hand knowledge of the workings of a large and diverse portfolio from his days working at billion dollar trend follower Chesapeake Capital, as well as being one of the original developers on the Mechanica backtesting platform.

Attain Portfolio Advisors: performance / performance

2010 saw a return to profitability for the APA Strategic Diversification program, with annual gains of +5.71% and a DD of -7.54%.  Gains were driven by the program’s long term trend following components, and trades in metals, softs, and interest rates in particular. Elsewhere, the program’s exposure to short term models kept it from earning more on the year, as those models struggled amongst the declining volatility in stock index and other sectors.  With continued research and model enhancements implemented throughout 2010, the managers view the current program as better than the one which earned 20%+ returns in ’07 and ’08, but only time will tell if they can recapture those types of returns.

The APA Modified program, meanwhile, finished the year at -5.64% despite posting winning months in 8 out of the last 10 months. Losses in January and February from trend reversals proved too much to overcome, unfortunately, for gains in 2010, but amendments to the program throughout 2010 leave it in a better place entering 2011, in the manager’s opinion.

Looking ahead, APA is in the final stages of design for a new ‘Total Portfolio’ program which dynamically alternates between varying allocations to stocks and managed futures, moving from 75% stocks/25% managed futures to 100% managed futures and 0% stocks in times of stress periods, and so on.  Look for the program to go live by the end of the first quarter of 2011.

Auctos Capital Management: performance

2010 was another successful year for Auctos Capital Management who celebrated their third anniversary with returns of +14.99% and a max intra-month drawdown of 8.35%. Similar to Accela, the Auctos team attributes most of their success to trading multiple models (8,), in three strategy sectors (trend following, pattern recognition, calendar spread trading) across a wide variety of markets (70). The top performing strategy sector in 2010 was pattern recognition, followed by calendar spreads, and then trend following according to Auctos - with all three producing positive returns.  

Auctos had the most success capturing trends in commodities, primarily cotton and silver, as well as spread trading Eurodollars. On the downside, the worst performing markets were foreign stock index notably Eurostoxx 50 and Nikkei.

Mr. Kevin Jamali, President & CEO of Auctos, is excited about where his program is headed in 2011. Mr. Jamali has built a strong research and trading team, and is actively looking for ways to improve each day. With three years of trading experience under their belt, Auctos is a worthy consideration for investment by anyone who is in the market for a quality emerging CTA.

Clarke Capital Management: performance / performance / performance

Clarke Capital had the dubious honor of producing both the best AND worst performing multi-market systematic programs of 2010. Let us start with the good news and profile the Clarke Worldwide program, which took top honors with a 41.69% ROR and max drawdown of 4.63% in 2010. The Worldwide program is a true systematic trend following program and it did exactly what it is designed to do, which is to catch diversified trends in the futures markets. What made this program’s 2010 performance unique is that the programs best performance came in the second quarter and third quarter when other multi-market programs were still struggling to regain their footing. Notable trades during this period include holding long US and European interest rates, long grains, and long foreign currencies.  In comparison, most multi-market systematic traders saw most of their gains come in the late third and early fourth quarters. Another notable fact regarding Worldwide performance in 2010 is that the program was profitable during 10 of 12 months, which is very high for a trendfollowing manager. After struggling in 2009, it was nice to see Worldwide regain its footing and hit new equity highs this past year.

For the lower minimum Clarke “Global” programs, 2010 was not as friendly. Clarke Global Magnum had its moments in 2010, namely a +22.50% month of May and +16.56% return in August. However, after posting negative returns in 8 out of 12 month overall performance in 2010 was just ordinary at +9.38% with a max drawdown of 14.44%. Likewise, Clarke Global Basic was able to put together a few nice months of trading in 2010 as well, including +24.37% in August when the program was long interest rates. However, the program performed poorly overall and was the worst performing multi-market program that we tracked in 2010 at -16.6%. Ultimately, both programs struggled throughout 2010 because of their smaller account sizes and low risk tolerance. Both programs were forced to skip many trades because the risk was too high upon entry, and was quickly stopped out of many trades that it did enter. Global Basic, in particular, was not able to participate in trends in markets like gold, silver, wheat and cotton due to the volatility filters set inside the program. For those markets that did take trades (bonds and currencies) an unusually high number of trades were stopped out, resulting in losses.

We have learned through the years not to count out wily, veteran traders like Michael Clarke, especially when his back is against the wall. However, it seems the curtain may be closing on lower minimum systematic trend following programs like Clarke’s Global Basic and Magnum that underperformed their larger counterparts in 2010. We are not of the opinion that the Global Basic or Global Magnum program is broken, as they more than likely will return to profitability at some point, but it does seem that the odds may be against smaller multi-market traders in today’s market environment. With this in mind Mr. Clarke recommends (for those clients that are able) switching to one of the larger Clarke trading programs that are more capable of sustaining the equity swings necessary to follow their own entry signals to a more profitable conclusion.

Covenant Capital Management: performance / performance

Covenant Capital Management finished its first full year of tracking at Attain with returns of +24.45% and drawdown of 7.36%. Covenant employs longer term trend following strategies that attempt to enter trades before market trends occur, and this entry technique allowed the Covenant Aggressive program to capture many of the market trends in 2010 (including those in precious metals, currencies, stock index, and grains) at lower risk entry points.  Another unique aspect of Covenant’s trading style, which also helped 2010 returns,  is that they primarily enter long positions (~70% of the time) due to their belief that commodity markets are destined to trend higher over time. 

2010 also marks the completion of the 7th year of trading for the Covenant Aggressive program, including the fourth consecutive year of positive returns. Another feather in Covenant’s cap is that they maintained a consistent risk/reward ratio over the last 3 years, including returns of 27.55% in 2008, 26.75% in 2009, and 24.45% in 2010.  This is impressive as most multi-market programs had significant deviations in return and drawdown when comparing 2008, 2009, and 2010.

Overall, we are impressed by Covenant’s first full year of trading at Attain and welcome them to our recommended program list.

Hoffman Asset Management: performance

Hoffman Asset Management wrapped up 2010 with a big month in December (+10.50%) pushing the program into the black for the year at+6.84% with a -6.44% drawdown. Still, when considering the program missed many of the commodity trends (wheat, cotton, and gold) that pushed similar multi-market systematic traders to new equity highs, 2010 ended up being a disappointing year for Hoffman investors. 

Mr. Hoffman’s trade selection / risk management process that is designed to filter out trades that are overly risky, seemed a little bit too risk averse in 2010, as the program passed on a number of potential trades that ended up being big gainers for other programs. Mr. Hoffman argues that the filtering strategy could just as easily result in better returns for his program compared to other trend followers in 2011 if the higher risk trades are losers.  While we agree with this premise, and understand why the program missed these trades, it is still hard not to look back at 2010 and consider what could have been.

There also remains the performance discrepancy between large ($250k) and smaller ($125K) accounts managed by Hoffman, with the former nearly at new equity highs and the latter mired in a 18 month DD. Hoffman is addressing this by splitting the program (and its performance) into large and small categories, and we’re anxious to see how they correlate with one another moving forward.

Integrated Managed Futures: performance / performance

Integrated Managed Futures of Toronto, CA had another successful year in 2010, with both the flagship IMFG Global Investment Program and the IMFG Global Concentrated Program riding the commodity rally to positive returns in 2010.

The picture was not as rosy during the first six months of the year as the markets were still recovering from the shock of the financial crisis in 2008 and 2009. According to head trader, Mr. Roland Austrup, the broad market consolidation of 2009, along with renewed concern with European soverign debt, produced a very difficult trading environment in the first half of 2010. During that period the bright spot for IMFC was the interest rate sector, which produced profitable trading opportunities as investors moved into US and German bonds.  

The second half of the year was a more favorable trading environment for IMFC as investor fear dissipated and opportunities unfolded across all risk assets. Portfolio returns were driven by gains in long metals , stock index, softs, grains, and energies.  

The net result for the year was solid performance with low drawdown and downside volatility. Respectively, the IMFC Global Investment and IMFC Global Concentrated programs had composite returns of returns of +12.60% and +9.76%. More importantly, monthly peak-to-trough drawdowns were, respectively, limited to 7.76% and 4.81%.

Other highlights from 2010 for IMFC include a new high in AUM at $40 million as well as continued progress researching new trading ideas and strategies. IMFC has one of the strongest research teams of any emerging CTA we know of and they are constantly looking for ways to enhance models in a diligent and deliberate fashion.  Examples of current projects include multi-factor models that utilize fundamental and economic data, option-based yield enhancement strategies and short-term counter-trend strategies to name a few. Risk management is a continuous area of research and current research endeavors are focused on additional stress testing, improving existing quantitative asset allocation models and option-based catastrophe insurance.

Steady program performance, along with commitment to improvement, are two of the main reasons why we continue to recommend IMFC as one of our preferred multi-market CTA programs.

James River Capital Corporation: Performance

For 2010, the program finished +7.13% following an excellent run up in December of +9.61% with a max drawdown of -7.39% during the year.  It is no surprise to see the program’s outsized return in December noting that JRCC is likely the longest term manager on our watch list with average hold times for winning trades of 370-500 days for its longest time frame models and 35-55 days for its shortest models = many of the trends that reversed in November did not result in the program exiting many positions.

As a long term trend-follower the JRCC program benefits when markets are trending and attempts to conserve capital in periods in non-trending markets.  Although the Navigator Program is broadly diversified across 59 actively traded markets, throughout most of 2010 relatively few markets entered discernable trends, limiting the opportunity for the program to invest profitably.  In the last half of the year, particularly in the fourth quarter, December specifically, market trends accelerated and profitability increased.  Compared with other long term trend-followers, the JRCC Navigator Program generally tends to hold winning positions for a longer period of time in order to maximize the gain from established trends.  However, they do have a unique “profit stop” that is engaged about 10% of the time should a market move too far, too fast in our favor.

The JRCC Navigator program is an “emerging’ strategy based upon assets and length of track record; however, James River Capital Corp. manages over $1.6 billion in directly managed and sponsored programs and funds.  With this infrastructure support and over 30 years of experience in futures markets, we are enthusiastic about the prospects for Navigator and look forward to reporting on them moving forward.

Robinson-Langley (RL) Capital Management: performance

Just like many of the other trend following strategies in the managed futures space, 2010 was a tale of two halves of trading.  The first half of the year was struggle for RL Capital as the program failed to find many profitable trading opportunities, ultimately resulting in a new max drawdown in July at -23%.  Right when it appeared that, the program was at rock bottom it bounced back in August with a 2% gain before posting +10% months in both September and October.

Notable trades during the year included a long Cotton trade that made approximately 80 cents or $4000 per contract for clients. This is the exact type of outlier trading opportunity that trend following strategies are expected to capture and RL Capital nailed it. RL also captured upward trends in soybeans and corn, as well as the nearly yearlong downward trend in natural gas.

When speaking with Jon Robinson (the Robinson of Robinson-Langley) he mentioned that he was most pleased with the programs dynamic exit strategies that allowed them to lock in the majority of profits in markets like cotton and soybeans.  The classic criticism of trend followers is that the give too much money back before exiting a profitable trade, and the exits designed by Jon and his team are designed to prevent that situation.   Other highlights from 2010 for RL Capital include a new high in AUM at $10mm, as well as being selected for inclusion in a new Alternative Strategies Fund.  

Attain Capital continues to believe in the RL Capital program. The last couple of years have been tough on trend following investors, but we believe this program’s best days lie ahead of and should be considered for investment by clients who are interested in adding trend following components to their portfolio.

---------------------------------  Short Term Systematic  -----------------------------------------

This group of managers is slightly different from their multi-market systematic peers in that these programs are typically in and out of trades in 2 days or less. There are some programs who straddle both categories, but preferred to be considered “short term” so we’ve included them here. Typically, short-term traders are lowly correlated to their longer term counterparts due to length of trade and because many of these programs include mean reversion systems that trade against the trend. Generally speaking, short term traders underperformed in 2010 due to contracting volatility across all market sectors, and a very biased market that trended higher day-after-day throughout the second half of the year. For 2011, we are expecting a more ‘normal’ market volatility expansion in varying sectors, as well as less trendy markets, both of which should be good for short term programs.

Applied Capital Systems: performance / performance

ACS is a short to medium term multi-strat program that trades 36 futures worldwide. While head trader, Tony Drew, tends to think of ACS as a short term program – the proper categorization might be shorter term. They do have some models that will hold a trade for a single day only, but they also have some trades that could last several months to a year in their longest term models. On average, their trades last about 12 days – making them shorter term than many of the classic systematic multi-market programs, yet not quite as short term as some programs whose average hold time is 1-2 days.

ACS completed its first full year of trading at Attain in 2010 up  4.00% with a 7.97% drawdown. The program was amongst our top performers throughout the first half of the year; however, the increase in market noise in the third and fourth quarters, caused an uptick in false system signals that eventually pulled this system back to the pack.

Bouchard Capital: performance

Bouchard Capital is a CTA new to Attain and the world, launching in 2010. The program’s head trader Christopher Freeman has a strong background in systematic trading after three years of successfully offering his product as a trading system via subscription.  After three years of watching the system outpace most other short term products, Chris and his partner, Morgan Benson, decided to discontinue the system business and become registered as a CTA. The transition has gone well with the program finishing 2010 up 8.40% with a 1.91% drawdown after four months of trading.

The Bouchard program is a pure systematic trader as that is designed to work equally well in rising, falling, trending, and choppy market conditions. Markets traded include nearly all commodity markets, stock index, fixed income, and foreign currency. Best performers in 2010 included energies, interest rates, and foreign currencies, while grains and softs lagged.

Thus far we are impressed with what we have seen out of this brand new program.   The track record is still short, but the fact that the program outpaced most short term traders in the final quarter of this year could be a sign of good things to come.   We recommend that clients who are looking for a lower minimum short term diversified program add Bouchard to their watch list.

Dominion Capital Management Sapphire: performance

2010 could go down as one of the toughest ever for short term traders as contracting volatility and very trendy markets proved to be kryptonite for programs like Dominion that have traditionally had success in a variety of market conditions. According Scott Foster, Dominion Capital President & CEO, there are two main factors that caused the struggles seen by short term traders in 2010. First, the Federal Government is to blame, due to their market intervention strategies (aka quantitative easing). The flooding of the market with dollars, a strategy designed to keep interest rates low and the US Dollar weak, literally sucked all the volatility out of the marketplace. Second, Mr. Foster also believes the dramatic increase in the number of high velocity, algorithmic traders (high frequency) has played a role as well as they have significantly increased the amount of “noise” in the marketplace, causing a substantially higher number of false signals for strategies like his. 

We agree with Mr. Foster on the quantitative easing comment as it was very easy to see market volatility dry up when rumors began floating regarding QE2 in the Fall. Unfortunately, rumors of a third round of quantitative easing (perhaps to bail out state & local governments?) are hitting the street; therefore, the situation could get worse before it gets better for short term traders. 

The other thing that sticks out when looking at Dominion’s trading is that it was very concentrated in stock index, foreign currency, and fixed income sectors, with very little exposure in commodities during the last quarter of the year. This meant markets with expanding volatility (gold, silver, cotton) were overlooked in favor of those with contracting volatility for whatever reason. Of course, risk management and liquidity play a role in market selection (and we are not privy to why a manager chooses the markets he does), but it seems like there were some missed opportunities in commodities for this program.  That said, the opportunity is ripe for any clients who have been waiting for an opportune time to start a good short term program like Dominion. The fact that entire sector including industry stalwarts like QIM and Crabel had a tough 2010, suggests a value opportunity in the short term arena. In fact, Attain likes this opportunity to invest in a drawdown so much, it has invested $1 Million into the program through its subsidiary Attain Portfolio Advisors.

Futures Truth: performance / performance

The Futures Truth team finished up a successful second year at Attain with the flagship Futures Truth MS4 program finishing the year at +19.41% with a drawdown of -7.01%. The program finished in the black in 9 out of 12 months including the last 8 months in a row.  The MS4 program trades four lowly correlated strategies including the short term SAM 101 suite of systems, which are offered as a standalone CTA as well. They mixed in a couple medium term systems, as well as long term trend following program and the MS4 product was born. The medium term and trend following systems were responsible for most of the program’s success in 2010, although the short term SAM 101 did provide an extra layer of diversification. Likewise, the program had a fair amount of success across multiple market sectors including grains, softs, energies, foreign currency, and fixed income.

SAM 101 did not have as successful of a year as the MS4 program, however it did hold its own at +2.55% and a drawdown of -9.50%. Considering the struggles seen by most short term strategies in 2010, this positive return is more than decent.  Hopefully, as market conditions improve, this program will finish 2011 closer to its target ROR of 20%.

GT Capital: performance

After a promising start in 2009, GT Capital suffered from many of the same issues that plagued other short term traders in 2010. Specifically, the continued contraction in volatility across all market sectors and the lack of back-and-forth market movement presented challenges for the manager’s style of trading. Head trader, German Teitelbaum, expects program performance to improve once the markets begin to “open up” again. Hopefully, that will be sooner than later in 2011. Since nearly 70% of this program’s trades occur in the emini SP 500 stock index futures contract, performance will rely heavily on the return of volatility to the stock market (which we would think should happen sooner rather than later based on the VIX returning to pre financial crisis levels and investor sentiment running at record bullishness…but who knows)

In general, the GT strategy is designed to go against the crowd by attempting to capitalize on fear, anticipating trader psychology at market turning points. Simply put, if the market has fallen, the advisor will wait until selling is exhausted and short sellers would likely buy back their positions with new buyers coming into the market. The opposite would hold true for establishing short positions. The idea is to establish long positions at the point where bulls are taking control from bears and enter short positions when bears are taking control from the bulls. In a trending market, the program is also designed to take partial profits by exiting portions of positions at pre-determined retracement levels, while leaving the remainder of the position open to take advantage of a continuation in the trend.

It is easy to see why this program struggled in the second half of 2010; there were simply not that many contrarian stock market movements to take advantage of. For the year the GT Program finished down -0.53% with a max drawdown of -7.62%.

Quantum Leap: performance

Quantum Leap Capital (QL) is a hybrid short term CTA with a trading style that isn’t quite short term enough(5-15 day average hold time)  to fit into the short term category and not long enough to be considered a genuine trend follower.  Sort of like a ‘tweener’ in basketball who is too small to play on the frontcourt and too big to play in the backcourt, QL’s shorter time frame has caused them to be too long term  when really short term was producing (2009) and not long term enough when long term returned (2010). 

Just like other short term traders we track, 2010 was a challenging year for QL in the face of contracting volatility in many markets and prolonged trends. The program showed signs of life in August posting a +5.50% ROR and rallied into the end of year to finish 2010 in the black at 0.60% with a max drawdown of -8.16%. Notable trades include long trades in Gold, Copper, Euro Currency, and Oil. Looking ahead to 2011, the QL team sees similarities to 2007 when the pundits were saying everything was fine and this time is different.  They don’t believe this time is different, instead thinking we’re headed for another downturn and volatility spike due to any one of a dozen factors from state bankruptcies to another round of mortgage resets.  If this comes to pass and we see volatility expand across all market sectors, QL should be looking at returns more in line with their +90% 2008 than the down and flat returns of the past two years. 

Sequential Capital Management: performance

2010 was a transitional year for Sequential Capital Management who incorporated changes in trading style, while also bringing in new personnel to the management team.  The original Sequential strategy was designed to be very short term with an average hold time of < 1 day. However, the markets didn’t co-operate and the manager was forced to go back to the drawing board, where they introduced strategies that held positions for 1-2 days. The result was a down year of -5.42%. Due to all the recent changes, we recommend that clients take a wait and see approach to Sequential at this point.

---------------------------------  Option Programs  -----------------------------------------

This category includes both traditional option CTAs (premium sellers) as well as a spread option programs in the S&P 500 and commodity markets.  2010 was a mixed bag for option programs with approximately 60% of the programs we track posting profits for the year, but volatility spikes in commodity markets making life tough on the premier option CTAs we track, including FCI and HB Capital. Despite the struggles of some programs, there were a few bright spots in the option sector, including a great comeback year by Crescent Bay.

Clarity Capital Management: performance

Clarity Capital Management was a new option program to Attain in 2010. Clarity sells what can be described as condor spreads on the emini SP and mini Russell 2000 futures options markets.  Selling a condor spread consists of selling one option position while simultaneously buying another option position with a net credit inflow of premium. The strategy is executed both on the call side of the market through the sale of call credit spreads and on the put side of the market through the sale of put credit spreads. The investor profits when the market price of underlying futures contracts stays below sold call strike prices and above sold put strike prices. The investor incurs a loss when unexpected price movements breach or approach the strike prices of sold options. 

This type of option strategy works best when market volatility is moderate and not prone to spikes, which was mostly the case in 2010.  But for every stretch of profitability there is always the potential for significant losses when volatility spikes unexpectedly, and Clarity investors experienced this first hand in 2010 when the “flash crash” wrecked havoc on option traders.   This brief spike in volatility resulted in an oversized loss of -5.58% for the month. However, the Clarity team stuck it out and bounced back with a profitable year at 10.16% and max drawdown of -8.98%.  With most stock index specific option managers having folded up shop after 2007/2008, Clarity is hoping to position itself as a leader in this category with another strong year.

Cervino Capital Management: performance/ performance / performance

Cervino Capital Management sort of feels like that trusty old Honda Civic in the garage; not very fancy, but oh so reliable – after its fifth straight year of gains.

Cervino offers three programs: Diversified, Diversified 2X, and new to Attain in 2010 - the Gold Covered Call program. We won’t bore you with all the details of the trading as we just featured Cervino in a managed futures spotlight highlighting these three programs last month. What is worth noting is that the Cervino Diversified program(s) are the only option programs that we actively track and have clients trading that has had positive returns in 2008, 2009, and 2010. The numbers certainly won’t make you fall out of your seat, but it is impressive to see an option program that consistently produced across three very different sets of market conditions, including the ultra volatile 2008.

This year the Cervino Diversfied 1X was up 3.68% with a -0.47% drawdown, Diversified 2X came in at 6.25% and a -1.43% drawdown, with the Gold Covered Call program finishing its first full year at 19.76% with a drawdown of -5.63%; not too shabby indeed.

Crescent Bay Capital Management: performance / performance 

The Crescent Bay Capital Management BVP program was the top performing option program offered at Attain in 2010 with returns of 28.49% and a drawdown of -7.29%.   The BVP program is a “hybrid” option selling program that includes premium collection and incorporates additional risk prevention by buying options with further out expirations, in hopes of offsetting volatility with slower time decay.  To achieve this the program trades three different positions simultaneously: sell options, buy options that are further out in time, and buy futures. This type of trade gives the program the potential to make money in flat or volatile market conditions. Of course, the strategy is not perfect (see 2008 & 2009) but it does show there is more than one way to be a successful emini SP premium seller.

The more traditional Crescent Bay Premium Stock Index program does not incorporate the extra risk prevention offered by BVP, as it is a strictly a premium (naked) option selling program. This allows for the potential of greater gains than the BVP program when volatility is high and falling, although this program should underperform BVP when volatility is low (less premium to collect). With volatility declining last year the Premium Stock Index program underperformed its sibling, but was still able to put up decent returns of 10.09% and a drawdown of -4.21%.

Despite these programs successes in 2010, we would like to see more proof of their ability to perform during stock index volatility spikes before getting on the bandwagon.

Financial Commodity Investments (FCI): performance / performance

It looked like 2010 was shaping up to be another good year for the FCI option programs at the half way point (end of June).   The venerable OSS program had finally clawed its way out of the drawdown suffered in 2008 and the program was at new equity highs, while the newer CPP program was also doing well as it continued to chug along month-after-month with only a few minor bumps along the way. But as can be the case with option sellers, just when things look rosiest is when trouble can come calling.

The first sign of weakness came in July when news of that a drought in Russia spiked volatility in the grains with wheat, corn, and soybeans all skyrocketing higher against short call positions for FCI. Soft grain markets like cotton and sugar also started to mount rallies against similar short call positions. By September, the wheels had completely fallen off for FCI (and others) as a weakening US Dollar caused tremors across the commodity markets; volatility spiked and the rest, as they say, was history. Both programs gave back all profits accumulated throughout the year and ended 2010 in drawdown, despite a comeback in Nov. and Dec. The final numbers were returns of 0.99% with a drawdown of -20.99% for OSS, while CPP turned in -0.96% with a 12.29% drawdown. 

Undoubtedly, it was disappointing year from Mr. Craig Kendall and his team, given that on balance, the environment was a good one for a short volatility program with volatility declining across commodity markets in 2010 (see our 2011 outlook). The brief spikes, however, took more away than was earned during the rest of the year.

The FCI team will be the first to admit that things did not go as planned, and we’re confident they are working overtime to figure out a way to lessen the impact of these spikes in the future as 2011 is shaping up to be another uncertain year across sectors destined to see such volatility spikes.  

HB Capital Management: performance

Just like his old colleagues at FCI, Mr. Howard Bernstein and his HB Capital diversified premium selling option program had a rough second half of 2010. The HB Capital program suffered its worse drawdown ever at -13.79% and finished 2010 in the red at -7.86%. According to Mr. Bernstein the three things that made the year challenging are as follows:

1. The stocks to use ratio for a number of commodities is dangerously low.  When this situation occurs, any bullish news exacerbates market moves.  Market participants scramble to try and lock in the amounts of commodities they need and this in turn creates incredibly violent price moves.

2. Russia suffered their worst drought in 130 years and it nearly destroyed their wheat crop.  This caused wheat prices to skyrocket and this in turn caused the prices of other commodities to increase significantly, as farmers switched over to growing wheat at the expense of things like corn, soybeans, cotton, and sugar amongst others.

3. The Federal Reserve in an effort to support the economy has implemented a number of programs that all serve to essentially weaken the dollar.  Whether or not they will work to improve the economy is a subject of great debate.  What is not debatable is that a weaker dollar increases the price of commodities because currently the dollar is still the world’s reserve currency.

Overall, it was difficult year to be an investor in the HB program, with just a few market spikes offsetting what was a beneficial declining volatility environment.  Whether HB can handle these events in the future more like they did in 2008 (where they had gains in spite of volatility spikes) instead of like they did in 2010 remains to be seen, but we’re willing to give them the benefit of the doubt for now and label 2010 an outlier.

Liberty Funds Group, Inc: performance

The Liberty Funds Group, Inc. Diversified Option Strategy was another new option program at Attain from 2010.  This program is unique because it offers the qualities of a short volatility option program as well as the benefits of a long volatility trend following program.  

How it works is that the program will initially enter the market by selling options against the trend in the commodity market in a method that manager Mr. Craig Caudle describes as “anti-trendfollowing.” The program will also work stops in the futures markets at the strike price that the option was sold; therefore, if the option strike is pierced the stops will be elected and the program will now have a futures position that is in the direction of the market trend. This program was designed specifically to be lowly correlated to all types of managed futures strategies, and while the returns have a lacked a bit so far, you have to give Liberty points for creativity.

Thus far, the real time results for liberty do not meet the style points of the programs description. After a very tough year of trading at -5.83% that included a new maximum drawdown of 12.90%, the program began to show signs of life in November and finished the year on a high note, which was good to see. We’re hoping to see further gains in 2011 and will continue to keep an eye on this unique approach.

Quiddity, LLC: performance

A new program to Attain in 2010, Quiddity describes itself as a “true option trader” whom actively trades both the long and the short side of the market. Launched in 2003, the Quiddity Earnings Diversification program has been profitable every year since inception including returns of 5.97% and a drawdown of -2.58% in 2010. The program managers like to point out that they specialize in the fixed income and foreign currency markets, which makes them unique compared to other diversified option trading programs.  

The program’s signature trade in 2010 was in the Japanese Yen. In the first quarter of the year Quiddity felt Yen volatility was mispriced, with out of the money puts and calls skewed high relative to at the money volatility.  Quiddity initiated a trade that bought a near at the money strangle while selling an out of the money strangle. The out of the money strangle financed the purchase of the at the money strangle, which limited the premium risk in this position. The position worked well, with the Yen rallying through the long call strike while the out of the money calls expired worthless. 

We are looking forward to learning more about Quiddity in 2011.

---------------------------------  Discretionary Programs  -----------------------------------------

Multi-market discretionary (aka non-systematic) traders had a decent year of trading in 2010; although, investors became frustrated at various points during the year due to lack of inactivity by some managers.   The common theme we heard from discretionary managers is that it is more important to “keep your powder dry,” than to place trades when the chance of success is low.  Overall, this strategy of trading less often worked well, as the majority of discretionary traders posted positive returns in 2010.

Dighton Capital, Ltd: performance

Dighton Capital was true to the Aggressive part of its program name in the first six months of 2010 when trading “aggressively” in coffee, sugar, and the dollar index throughout the first half of the year. The results were positive, with the program almost attaining new equity highs by July. However, after two big months of trading in June and July the Dighton program went quiet for the remainder of 2010 – literally not trading for several months in a row.  The manager blamed the lack of activity on an absence of trading opportunities, despite the curious fact that many of Dighton’s signature markets including cotton and sugar rallied significantly from August into the end of the year.  Therefore, despite the positive gains of 25.13% for the year with a manageable drawdown of -11.10%, most investors left 2010 feeling frustrated by Dighton’s lack of “aggressive” trading in the second half of the year. It is worth noting that despite the lack of trading the program still finished in the top 5 based on ROR out of all the programs we track.

What can we expect from Dighton in 2011? Will they continue to be very quiet in their trading? Or will they reengage the market in a strong way?  We surely don’t want them to trade just for the sake of trading, and would take another 20%+ year in a heartbeat even if it came from a single day of trading. But it would be nice to see them engaging the softs more actively as they continue to make new highs and present trading opportunities. There will always be the potential for frustration with Dighton when they don’t trade, but that is the nature of the ‘discretionary’ beast, so to speak.

DMH: performance

It was another frustrating year for the manager of DMH as they were not able to take advantage of many market trends throughout the year.   2010 started off promising with returns of 1.08% in January, but the program was not able to capitalize on the early momentum and failed to return a profit for the second year in a row as trading volume was quite low. The final numbers were -0.39% ROR with a max drawdown of 2.43%.

 When speaking with manager David Heinz, he has analyzed the poor 2009 and 2010 conditions for his program, and saw that many potential winning trades were being passed on because of higher than average market risk in the face of his desire to keep drawdowns low.  Therefore, the decision was made at the end of 2010 to increase the minimum investment from $100,000 to $200,000 with the goal of being able to take more positions without significantly raising margin use (and in turn DDs). Hopefully, this change will kick start the program and allow it to return to its winning ways in 2011.

Global Ag, LLC: Performance

Global Ag was yet another new manager added to our expanded watch list of actively tracked CTA’s in 2010.  In terms of 2010 - by many investors standards their return of +86.29% with a max drawdown of -13.03% for the year is simply amazing.  And while we will congratulate them on this success, we also want to ensure that investors are aware of the potential volatility associated with achieving such returns.  Based on our analysis of their daily returns, the annualized volatility of Global Ag has been in the range of 30% annualized with a max intramonth drawdown of approximately 30% vs the 15.53% end of month drawdown reported.

From a trading perspective, Global Ag is the purest form of discretionary fundamental trading out there – in an interview with the manager he noted that, “he rarely looks at a chart and typically only does so to get an idea of what others might be tracking.”  For 2010 this strategy paid off as he began to identify long opportunities in the corn and soybean markets based on excessive rain throughout the “Corn Belt” midsummer that later turned into flooding.  Prices were later compounded based on the Russian drought and increased Chinese demand.

For investors looking for exposure to the agriculture markets, Global Ag should definitely be added to your watch list and considered an opportunity based investment strategy following 20% + drawdowns.

Mesirow Financial Commodities: performance / performance

Mesirow Financial Commodities was another discretionary manager that was forced to keep its cards close to the vest in 2010.   Throughout the year, the management team of Tom Willis Sr. and his son Tom Willis Jr. were able to successfully indentify themes in the marketplace, but had difficulty capitalizing on them,  with many of the trends they indentified taking longer than expected to mature. A short term trader by nature, the Mesirow team found themselves exiting trades a day or two early as they did not get the market confirmation they were looking for after the trade was placed. Mesirow picked up the pace late in the year with a couple nice trades, including a long gold position that pushed returns for the Absolute Returns program to 3.97% for the year with a miniscule max drawdown of -0.30%. The Low Volatility version of the program finished at 1.26% with a max drawdown of -0.09%. The manager also announced the official closing of the program in 2010 as assets under management climbed to 1.2 billion. Congratulations to Mesirow for reaching this impressive goal! We’re hopeful the capping of the program allows the Willis’ to be more nimble and recapture some of the double digit annual gains they have produced in the past. 

---------------------------------  Spread Trading  -----------------------------------------

It seemed as if spread trading became the new “it” strategy in the managed futures space in 2010 with quite a few new spread CTAs starting trading this year. We theorize that this type of trading has become so popular amongst professional traders is because of the success of existing spread traders like Rosetta and Emil Van Essen, the perceived notion that spread trading is less risky than outright position trading, and moderate margin requirements for spread trades .

 Spread Trading is the simultaneous purchase and sale of something very similar, economically speaking. In commodity markets, that usually means buying one contract month of a market while selling another contract month of the same market. For example, buying March 2011 Corn futures and selling December 2011 Corn futures is a spread trade.

Depending on whether you buy or sell the spread - the goal of a spread trade is for the difference between the two sides of the trade to either get further apart or closer together. In our example above, you would want either March Corn rising faster than December Corn does, or December Corn falling faster than March Corn.

Emil Van Essen: performance / performance

Mr. Van Essen and his team focus on buying and selling the same commodity across different contract months (aka calendar spreads), with the goal of the trade to profit when the large funds and long only commodity ETF’s roll their positions each quarter (creating demand in the contract being rolled to, and selling pressure in the contract being rolled from).  This type of strategy is not unique and was made famous by large Wall St. firms and has even been nicknamed the Goldman Roll strategy by traders after Goldman Sachs, but the Emil Van Essen program is the only managed account we know of employing this strategy.

This style of trading worked just fine during the first nine months of the year as commodities exhibited EVE’s preferred Contango tendencies. Contango price activity is when the further out futures price for delivery is more expensive than the current spot or front month futures contract; representing the cost of carry. Contango market conditions allowed EVE to sell the front month contract, buy the back month contract, and wait for the large commodity ETF's like oil ETF USO to roll their positions as normal (sell the front month, and buy the further out month). However, by October the energy markets began to rally after essentially going sideways for the first nine months of the year, and oddly enough rallied more in the front months than they did in the back months (resulting in less of a Contango market).

This is when EVE began running into trouble as the spread trades that were designed to take advantage of contango in the energy markets started to quickly lose money. The end result was three straight months of losses (the most ever for the program) and the worst performing year on record for the two programs with the EVE Low Minimum generating returns of 6.66% and a drawdown of -6.92% and the EVE High Minimum at +11.82% with a -5.29% drawdown. 

Despite the rough finish to 2010, EVE continues to be a good choice for anyone looking to diversify into a spread trading program this year, and represents a nice drawdown entry point (although it has rallied significantly off its drawdown low already). 

NDX Capital Management: performance / performance

NDX bounced back from a very tough year in 2009 with profitable returns in 2010. Head trader Phil Herbert says that while the spread market in hogs continued to be difficult in 2010, the market’s behavior started performing more in line with historical price patters, which resulted in profitable trading for the NDX programs.  The flagship NDX Shadrach program finished 2010 up 7.81% with a drawdown of 2.94%, while the NDX Abedengo program was up 1.01% with a 0.98% drawdown.

But perhaps the bigger news for NDX in 2010 was the departure of Alan Zenk and the Simpson brothers from the NDX management team as of April. As with any major change we have been closely monitoring the trading and are happy to report that we haven’t seen any material differences in the trading style or management of the program.  Both the Shadrach and Abednego programs have been net profitable since the management changes.  One critique of the program investors have had has been the lower levels of trading (i.e fewer positions) resulting in less potential for repeating the gains the Shadrach from program enjoyed in 2008, but the trading level had started to decline well before the management team changes.

Heading into 2011, Mr. Herbert sees inflation as being the dominant theme for commodity price action and expects to see significant price appreciation in the feedstocks, such as corn, wheat, and beans that should carry over into the livestock markets and provide plenty of trading opportunities. We’ll see if that translates into more trading for NDX and a return to double digit gains.

Rosetta: performance

Rosetta Capital Management was 2010’s comeback managed futures program of the year, with returns of 28.62% and drawdown of -4.50%.  This discretionary agriculture spread program saw market volatility explode in the grains after a severe drought in Russia, growing problems in Argentina, and quantitative easing which brought the inflation trade into the grain markets in the second half of 2010.  Rosetta’s returns in 2010 were driven by long spread trades in corn and live cattle, which both rallied significantly due to the factors described above. Head trader, Jim Green, expects these bullish conditions to continue into the first quarter of 2011, if not longer.

After 29 months in drawdown (May 2008 – September 2010), most investors who held on to Rosetta and/or invested in the program during the drawdown were rewarded with new equity highs, however there are some investors who continue to be in drawdown from the 2008 highs as they suffered larger losses than the average investor in 2008 and 2009 due to differences in trade entry timing (i.e.when they started).

Getting those investors back to new equity highs as well will be the next milestone for Rosetta, and then onwards and upwards as new opportunities emerge in the AG markets Mr. Green follows.  For investors looking to add Rosetta for the first time, our recommendation is to target entries on new signals, when margin levels are low, or following periods of 10% drawdown or greater. 

---------------------------------  Specialty Programs  -----------------------------------------

This group of managers is a catch all of sorts for programs that don’t fit well in the other categories listed in this newsletter. Specialty managers are usually focused on trading one market / sector, aka specialists. All three of these programs are new to Attain in 2010 and offer good diversification opportunities within the typical managed futures portfolio.

2100 Xenon: performance

Widely regarded as “Fixed Income Specialists”, the 2100 Xenon team is the only managed futures program we know of which is focused solely on trading fixed income markets across the U.S., Europe, Asia, and Australia.

The final numbers for 2100 Xenon Fixed Income in 2010 were 0.60% ROR with a -5.50% drawdown, which came in well below the manager’s expectations. According to Mr. Feurstein, the 2100 Fixed income programs struggled to gain traction in 2010 because of cross currents in the economy, quantitative easing, as well as influences abroad including political actions by Korea and China.

In early 2010 we wrote a spotlight on 2100 Xenon (click here) highlighting our belief that volatility was looming in the fixed income market (rates likely to move higher) and that active exposure to the sector via the 2100 Xenon Fixed income program was just the means for gaining the necessary exposure.  As it turns out our call was about 4 months early… as rates moved lower from April through August.  And 2100 Xenon actually did well in that environment, earning just over 4% between May and August and apparently well on its way to high single digit returns (target volatility of 7.5 – 10%).  The reversal in rates the rest of the year was more in line with our prediction of rising rates, but unfortunately the environment caused losses for 2100 Xenon instead of the expected gains – being a reversal of the existing trend.  

With fixed income markets relatively neutral now, it will be interesting to see if 2100 Xenon can get in line with a new down trend should it emerge.  We are still of the belief that there is a lot of downside to treasury prices (rates higher), and 2100 Xenon can profit from it.

AFB Fortyeighter: performance

The AFB FortyEighters gold program is a discretionary, medium term options trading program focused on trading gold. A premium seller at heart, the AFB program primarily consists of writing (selling) call and put options on the gold futures contract, with the goal of profiting from time decay. In 2010, the manager added an “at the money” protection strategy in the form of futures contracts that is designed to decrease volatility and margin use in the program. The adjustments worked well in 2010 with the program reducing average margin to equity ratio from 35% to 25%.  Performance remained stable with returns of 45.57% and a drawdown of -3.13%.

Dwayne Pliska, managing partner of AFB, had the following  comments regarding the program performance in 2010:

The beginning of 2010 was an optimal trading environment for the gold program as the gold market was caught between two fundamental arguments (inflation versus deflation) which allowed us to correctly position ourselves early in the year until midyear. The second half of the year made us reevaluate our risk parameters even further with gold making parabolic moves, and we actually adapted to this trading environment with a trade coined “surf trading” which helped the program achieve consistent results for the year.

Cervino Capital Management LLC Gold Covered Call: performance

In November  2009, the founders of the successful Cervino Diversified program launched a managed futures program designed specifically to mimic holding a long gold investment, with the expectation that they could outperform the popular gold ETF $GLD on a risk adjusted basis by using futures and options to protect against downside risk. 

The program enters a synthetic long gold (beta) position by purchasing long gold futures contracts, then they add a an alpha overlay that generates income from premium by writing calls, and providing risk protection by purchasing puts. This type of strategy works best in neutral to mildly bullish markets, with the added benefit of losing less than a non-hedged long gold position when the market is moving lower. Overall, 2010 was a very successful year for the Gold Covered Call program with returns of 19.76% and a drawdown of -5.63%.

If you’re looking for long gold exposure and are interested in the added benefit of an actively managed program, there is no reason to look any further than Cervino. Another important item to point out is that the manager does not charge an incentive fee for this program; as the managers do not believe they deserve to share part of the profits for simply establishing a long position in the market. However, the typical 2% management fee is applicable due to the active management of the downside protection and income producing trades.

P/E Investments: performance / performance / performance

P/E Investments was another new manager to Attain in 2010; however, with a seven-year track record, and nearly $1 billion in assets under management across three programs, P/E is not really new at all. What makes this program unique is that it is a managed foreign exchange program that executes 100% of its trades in the exchange traded currency futures and forwards markets, not the OTC cash exchange that most investors are familiar with. The program is also 100% systematic with systems that focus on yield (short term rates as well as long term rates, and yield curve characteristics,) and risk (market liquidity, long term rate movement and acceleration, as well as inflation / commodity price changes.) Markets traded include the Aussie Dollar, Canadian Dollar, Euro, New Zealand Dollar, Norwegian Krone, Swedish Krona, Swiss Franc, British Pound, & Japanese Yen.

With three programs offered to investors (Conservative, Standard, and Aggressive) there is a version of P/E to fit a variety of high net worth and institutional investor profiles, although with a $1mm minimum investment this program requires significantly more capital than the typical retail managed f/x program. Over the last three years (rolling) the Conservative program has had average annualized rate of returns of 6%-7% with a standard deviation of 6%, the Standard program 12%-15% with 12% standard deviation, while the Aggressive was at 16%-17% ROR with a 17% standard deviation.  

The Standard program (which is actively tracked & traded at Attain) finished 2010 slightly below expectations at 6.19% with a -6.75% max drawdown. However, the results come more in line with expectations when considering the amount of government intervention in the currency markets over the past 12 months.

---------------------------------  Stock Index  -----------------------------------------

It was not an easy year to be a short term stock index CTA in 2010.  In fact, investors were better off just buying the S&P 500 index and holding long throughout the year, rather than investing with a program that traded both sides of the market. There are two common themes as to why short term traders struggled in 2010:  The first is the flash crash in May that saw S&P Stock Index futures fall over a 100 points or 8.50% in just a few hours of trading. The second event was quantitative easing (QE2) and the huge volatility decline of the second half of the year as stocks simply marched higher seemingly day after day and week after week. All of which made it a very difficult year to be a short term systematic trader in the stock index sector.

Paskewitz Asset Management: performance / performance

With negative returns of -6.55% and a max end of month drawdown of -12.18%, 2010 was the most challenging year on record for the PAM Contrarian 3X St. Index program.  

The challenges began in March in what was a very difficult month for PAM (the worst ever in their 7 year track record) with the program losing -12.18%. March was a contrarian trader’s nightmare with 16 out of 22 trading days being positive for the S&P 500 and the market gaining +5.90% overall.  The PAM took a series of big losses on short trades with the cumulative result being the worst month ever for the program.

The second challenge came in May during the “flash crash” that saw the Dow fall 900 points over the course of a few hours. PAM was long during the crash and surprisingly was not stopped out during the severe downward move. In fact, PAM added to its long position a day later and ultimately ended up making 2.50% overall during this trade sequence.

The worst seemed to be behind PAM by the end July, especially after a great month that saw clients gain just over 10% and the program hit new equity highs. However, it wasn’t meant to be as PAM was stymied by stock market conditions in the second half of the year;  including a significant decrease in stock market volatility that saw the VIX fall by 60%, and the twenty-day average true range in the emini SP fell below 10 for the first time since the fall of 2006.

There were some bright spots at Paskewitz this past year, including the official launch of the PAM Diversified program. PAM Diversified includes systems that are very similar to those utilized in the PAM Contrarian St. Index program, along with trendfollowing and short term momentum systems, across a diversified market set.  All three strategies are lowly correlated, and according to Mr. Paskewitz, an investment in PAM Contrarian is similar to trading a portfolio of uncorrelated CTA’s with three distinct strategies (short term, long term, and contrarian) in one product. We are still completing our due diligence on the PAM Contrarian program and are set to add it to our watch list for 2011.

Roe Capital Management: performance / performance

Roe Capital brought two new short term programs to Attain in 2010. The first is the Roe Capital Monticello Equity spreads program whose strategy is to establish a position in the emini SP and hedge it with emini NASADAQ in the opposite direction. The result is an inter-market spread where the program is long ES and short NQ or vice versa. After establishing the initial position, the program will also utilize a series of day trading models that trade “around” the initial spread. Generally, these day trading models seek to profit from brief periods of mean reversion during the day session and provide an extra layer of protection to the ES/NQ spread.

The manager also offers the Roe Capital Jefferson program that trades virtually the same strategies as Monticello in the emini SP, but does not utilize the emini NASDAQ hedge. The systems will establish a position in the ES and then trade around it with the day trading models.

Both Roe programs saw positive returns in 2010 with Roe Monticello at 8.52% with a  -10.99% drawdown, while Roe Jefferson was up 4.55% with a -8.86% drawdown. 

The best trading stretch in 2010 for Roe occurred from the last day of May to the end of July, coming on the heels of a difficult spring. Equity markets, roiled by the May flash crash and Euro zone sovereign debt internalization, calmed in June before heading to lows of the year in July. Once that low was reached in early July, the market immediately rallied to test the quarterly highs. It is this type of rally, sell-off and repeat which—if it occurs in the right time frame—can generate the mean reversions from which Roe seeks to profit.

Likewise, the worst trading environment occurred in late May and August, as waterfall declines appeared in the overnight markets catching Roe long. Roe tells us, “When there are large overnight gaps over continuous days, beginning on the first day of the week, we tend to post our largest drawdowns.   May and August saw two such weeks.”

Overall, Roe impressed us with their 2010 performance and ability to post gains in an environment that was very unfriendly to short term stock index traders.  We’re looking forward to another successful year out of Mr. Roe and his team in 2011.


Report Compiled by John Cummings, Investment Research Manager – Attain Capital Management


No Yes Was this article particularly interesting or helpful to you?

No Forward this email to a friend who might find it useful.

Not on our mailing list? Sign up now to receive this weekly newsletter.

Feature | Week In Review:

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.