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

Stocks Look Great… Now What?

April 2, 2012

 

 

We talk a lot about the diversification value of managed futures within an investment portfolio, because we think it’s important to view each piece of your portfolio in context. Each piece is a part of the investing machine, and the only way it works is when you see all the pieces working together. That being said, there’s another attraction to managed futures as an asset class, and that is performance. Past performance is not necessarily indicative of future results, but investors chasing returns will light up when looking at some of the double digit years that pepper managed futures indices history. These indices are an imperfect proxy for measuring the performance of the asset class, but their record can be alluring.

The problem for these investors is that they are often blinded by these years of double digit returns, and will overlook some of the more lackluster years, becoming frustrated when one of them pop up. They typically compare the performance of managed futures against the performance of the asset class they’re most familiar with - stocks. When stocks outperform managed futures as they have for the past three years, the frustration escalates. Why invest in managed futures if you could have your money in stocks when they’re soaring?


SOURCES: Stocks = S&P 500, Managed Futures = Dow Jones Credit Suisse Managed Futures Index

DISCLAIMER: PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

The past three years aren’t exactly a ringing endorsement for managed futures, but the bigger picture tells a different story, with managed futures outperforming stocks over the past 5 years.


SOURCES: Stocks = S&P 500, Managed Futures = Dow Jones Credit Suisse Managed Futures Index

DISCLAIMER: PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

The managed futures industry is usually trying to sell you, the investor, on the need for managed futures during a crisis period.  And indeed, while past performance is not necessarily indicative of future results, there have been strong periods of managed futures performance while the stock market has been struggling.

In analyzing the data, we quickly found that periods in which one asset class was outperforming the other were not completely random and helter-skelter, as one might assume, but, instead, were fairly consistent. We defined a cycle as 12 months of uninterrupted outperformance by one asset class, with the clumps of months in between constituting “rogue” stretches without a performance trend. Of the 207 months we sorted through, only 8% fell outside of one of these cycles. That was more than enough to pique our interest.

We found three such distinct time periods in which managed futures outperformed stocks going back to 1993, where there was at least 12 months of uninterrupted “outperformance” (the rolling 12-month return for managed futures greater than the rolling 12-month returns for stocks).


SOURCES: Stocks = S&P 500, Managed Futures = BarclayHedge CTA Index

DISCLAIMER: PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

The above numbers present a powerful argument in and of itself, but the more nuanced approach is to look at not just how managed futures do when stocks are in crisis mode, but also how they perform during periods of strong returns for stocks like the period we’ve witnessed over the past 3 years.

Using the same metric to identify periods when there were at least 12 months of uninterrupted “outperformance” (stock 12 month rolling returns greater than managed futures rolling 12 month returns), we identified 6 such periods of stock market outperformance over managed futures.


SOURCES: Stocks = S&P 500, Managed Futures = BarclayHedge CTA Index

DISCLAIMER: PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

When stocks are down, managed futures are good; when stocks are up, managed futures are good.

Now, nobody would be looking to put money with managed futures based solely off the numbers above, with stocks outperforming managed futures by a factor of 3.6 on average. But the devil is in the details, as they say – and the takeaway here is that while managed futures do underperform stocks during strong periods for stocks – they still hold their own.

That is in sharp contrast to the performance of stocks when managed futures are outperforming – stocks tend to lose substantially. It’s like an investment version of Pascal’s famous wager – in which a simple decision matrix was set up to explore the existence of God.

Pacal’s Wager – Managed Futures Style


Pascal’s wager essentially boiled down to a risk vs. reward decision, analyzing what would happen in each case should his belief be proven or disproven.  If belief A results in one positive result and one negative result, and belief B results in two positive results – then the rational being should choose belief B. (ok, enough reliving our philosophy days).

In the managed futures version, we’re all too often only looking at the “Periods of Stock Underperformance” section, and trying to avoid that scary negative performance result. But the periods of stock outperformance should weigh equally on the decision to allocate to managed futures. In our opinion, this is what separates managed futures from pure hedge techniques or short-selling hedge funds which only make money when there is a crisis.  In that way, managed futures act as a sort of unique insurance policy, which at times requires payments (down periods) but which also has times at which the insurance actually pays you to hold it (when is that coming to auto insurance?)

Now, this analysis is limited in a number of ways. To start with, the analysis is based on past performance, which is NOT necessarily indicative of future results. The analysis is also based on indices, and any index - whether it’s managed futures, stocks, bonds, real estate or otherwise - is going to be an imperfect proxy for the performance of an asset class. It’s meant to be a snapshot, not a granular breakdown of all possibilities. It’s the closest we can get to an even-handed evaluation of asset classes, which is why we use them, but the average investor is going to have that more granular portfolio, particularly on the managed futures side. Maybe they are holding some kind of S&P 500 fund or ETF share in their overall investing portfolio, but if they’re investing in managed futures, it’s going to be via a combination of managers, not the entirety of the BarclayHedge CTA Index.

What about when stocks are really good?

Now, having said all of this about managed futures being just fine when stocks are in rally mode – our curiosity got the better of us asking the question - just where does the current period of stock outperformance rank amongst those of the past?

The graph below depicts the 36-month rolling returns for stocks minus the same 36 month rolling return for managed futures.


SOURCES: Stocks = S&P 500, Managed Futures = BarclayHedge CTA Index

DISCLAIMER: PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

You can see that we have gone rather parabolic on the right edge of the chart, and are pushing into areas not seen since the internet bubble days of the late 1990s. How will it work out this time?  There’s the old saying about running out of money before the markets return to sanity, and the streets are littered with people who have prematurely called the top of this rally. But, the odds would seem to favor a reversion to the mean sometime soon, which would represent essentially even performance between stocks and managed futures since 1993 (with stocks noticeably more volatile, experiencing drawdowns several orders of magnitude larger than managed futures). Nobody has a crystal ball – least of all us – but this isn’t the kind of chart we’d like to tempt the fates with.

 

IMPORTANT RISK DISCLOSURE


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 | Month In Review: Indices March Onward

The indices all posted another month of gains, as the Dow gained 2.15%, the S&P 500 was up 3.30%, the Nasdaq gained 5.10%, the S&P Mid-Cap 400 E-mini gained 1.90%, and the Russell 2000 E-mini was up 2.67%. Bonds showed signs of weakness, US 10-year notes were down -1.12%, and US 30-year bonds lost -2.76%. In currencies, the US Dollar lost -0.10%, the Japanese Yen fell -2.08%, the British Pound was up 0.67%, the Euro finished the month perfectly flat at 0.00%, and the Swiss Franc rose 0.20%.

Metals all slid on the month, with Gold down -2.46%, Silver falling -6.23%, Copper losing -1.40%, Platinum falling -3.19%, and Palladium down -7.67%. In energies, Crude lost -4.25%, Heating Oil lost -1.56%, RBOB Gasoline rose 2.61%, and Natural Gas hit a new all-time low and finished the month down -21.52%.

In grains, Corn was down -2.13%, Wheat lost -1.09%, and Soy gained 6.29%. In meats, Live Cattle fell -7.90%, and Live Hogs were down -6.74%. In Softs, Cocoa was down -4.93%, Orange Juice fell -11.44%, Cotton rose 3.41%, Coffee lost -10.23%, and Sugar was down -1.20%.

Trading Systems

The lone day trading system PSI! TF was up $914.03. On the swing trading side, MoneyBeans S was down -$1940, MoneyMaker ES was up $2262.50, Strategic ES made $662.50, Strategic SP lost -$475, and TurningPoint ES and TurningPoint X2 ES gained $370 apiece.

CTAs

March was overall unkind to the programs we track, with a few notable exceptions. Clark Capital Global Basic bucked the trend by being the only trendfollowing program to finish the month with a positive return. On average, agriculture programs enjoyed the most success this month, with all of them posting gains or only mild losses. Several programs had a particularly bad month, including FCI OSS, Bouchard Capital LLC Short Term Multi Commodity, and AFB LLC Forty-Eighter Gold Options. Check out the full heat map below:

Program

%**

Max DD*

Strategy Type

Clarke Capital Management, Inc. Global Basic

7.24%

-46.49%

Trendfollowing

Rosetta (QEP Only)

3.32%

-39.67%

Agriculture

Dominion Capital Management (QEP Only)

3.08%

-15.22%

Short Term

Paskewitz

2.67%

-18.21%

Stock Index

Global Ag (QEP Only)

2.67%

-17.57%

Agriculture

HB Capital

2.58%

-13.79%

Option

Tanyard Creek Capital (QEP Only)

2.41%

-14.17%

Agriculture

P/E Investments FX Strategy - Standard

1.89%

-15.01%

Currency

White River Group Diversified Option Writing

1.53%

-15.08%

Option

Auctos Capital Management

0.01%

-12.25%

Multi-Strategy

Reynoso Capital Management - Small Accounts

-0.11%

-16.05%

Option

NDX Shadrach

-0.12%

-19.38%

Agriculture

NDX Abedengo

-0.12%

-10.28%

Agriculture

Clarke Capital Management, Inc. Global Magnum

-0.17%

-41.50%

Trendfollowing

Bluenose Capital Management LLC - BNC EI

-0.24%

-9.98%

Option

Mesirow Absolute Return

-0.29%

-1.56%

Discretionary

Emil Van Essen, LLC Combined (Low Min)

-0.56%

-36.21%

Spread Trading

GT Capital

-0.61%

-11.79%

Discretionary

Emil Van Essen, LLC Commodity Only (Low Min)

-0.74%

-36.21%

Spread Trading

Cervino Diversified Options

-1.02%

-8.34%

Option

Integrated Managed Futures Corp. IMFC Global Concentrated

-1.07%

-10.31%

Multi-Strategy

Robinson-Langley Capital Management, LLC Managed Account

-1.39%

-23.68%

Trendfollowing

Bel Air Capital Asset Management

-1.56%

-24.05%

Multi-Strategy

Futures Truth MS4 (QEP Only)

-1.72%

-9.18%

Multi-Strategy

Cervino Gold

-1.89%

-6.69%

Gold

2100 Xenon Managed Futures (2x) Program:

-1.97%

-18.40%

Multi-Strategy

Hoffman Asset Management, INC. Managed Account

-2.07%

-19.38%

Trendfollowing

Cervino Diversified 2x

-2.19%

-17.32%

Option

James River Capital Corp. - Navigator

-2.25%

-18.60%

Trendfollowing

Quantum Leap Capital (QEP Only)

-2.38%

-24.44%

Short Term

2100 Xenon Fixed Income Program:

-2.56%

-7.46%

Fixed Income

Attain Portfolio Advisors - Strategic Diversification Program

-2.83%

-24.39%

Multi-Strategy

Bluenose Capital Management LLC - BNC BI

-2.91%

-5.77%

Option

FCI CPP

-3.12%

-18.73%

Option

Clarke Capital Management, Inc. Worldwide

-3.17%

-30.83%

Trendfollowing

Crescent Bay BVP

-3.34%

-32.69%

Option

Covenant Capital Management Aggressive

-5.43%

-20.41%

Trendfollowing

Futures Truth SAM 101

-6.78%

-12.62%

Multi-Strategy

FCI OSS

-10.49%

-52.73%

Option

Bouchard Capital, LLC Short Term Multi Commodity

-10.61%

-13.79%

Short Term

AFB LLC FortyEighter Gold Options

-11.77%

-44.10%

Gold

 

*Max DD= A drawdown is the “pain” experienced by an investor in a specific investment. As an example, an investor starting out with a $100,000 account who sees it fall down to $80,000 before it runs back up to $110,000 saw a $20,000 loss ($100K – $80K), which would equal a -20% ($20K/$100K) drawdown. The so called Maximum Drawdown (Max DD) is the worst such peak to valley down period for an investment.

**Disclaimer: Past performance is not necessarily indicative of future results.  These performance numbers are calculated using the liquidating value of a single client at Attain trading the listed program, and are believed to be representative of all similar clients invested in the program.  A 20% incentive fee and 2% annual management fee are deducted from all profitable months, regardless of whether the program is at a new equity high.  These numbers may vary from the actual performance numbers presented by the CTA upon completing their accounting for the month gone by, and should not be considered apart from the performance numbers listed in the disclosure document for the program listed.

 

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.