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

That's Just About the Size of Things

March 19, 2012

 

When you start learning about an asset class for the first time, most of the information you receive is going to be general. The glossy brochures provided to investors give sweeping, 20,000 foot views of the opportunities in front of them. These generalizations may make for great marketing material, but rarely do they provide investors with the kinds of solid information they need in order to make an informed decision.

How do we mean? Particularly in managed futures, performance data gets derived from indices and put into charts like this:

Managed Futures Indices

SOURCES: Barclay = BarclayHedge CTA Index, Newedge = Newedge CTA Index, DJCS = Dow Jones Credit Suisse Managed Futures Index

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

But sometimes that kind of performance looks too good to be true. Many investors want to know that the investment is trusted by others, and those pitching the asset class will usually show the growth of assets under management across the board in a chart like this:

AUM

SOURCE: BARCLAYHEDGE WEBSITE

We're guilty of this approach as well. In some ways, it makes sense; you get a snapshot to help you decide whether or not you want to learn more about the options out there. In other ways, though, it doesn't. After all, you don't invest in a managed futures index; you invest in the CTAs that match your goals and risk tolerance. You shouldn't make decisions based on what everyone else is doing; you should invest in a way that makes sense for your portfolio. And really, even if you're looking for a broad stroke painting of the opportunities in managed futures, the skew in the data makes this big picture approach a little too big to be useful- it's like relying on a blurry, pixelated shot from a camera phone circa 2002.

We won't tell you to ignore information the asset class as a whole, but we do think that filtering the information further makes it much more useful. Because we're the helpful people we are, we decided to compile said filtered information for your investigative purposes.

Before we get to the chart fest below, we want to clarify how it was all calculated out. One of the problems with a snapshot of managed futures is that the available data isn't exactly pure. BarclayHedge is the largest data provider of CTA data out there, but the lack of restrictions on who can report to their database makes sloughing through the results treacherous navigating. The raw data includes non-NFA registered CTAs and a whole slew of funds. Even in a world where you whittle it down to just NFA registered CTAs offering managed account access, the diversity of programs is too broad for a clear picture of the asset class. Some programs have one month of performance, while others will have 30 years. Some programs are widely respected, world class investments while others are a blow up waiting to happen.

Even trying to calculate out something as simple as how many programs go out of business isn't as simple as it looks. It doesn't matter if a program is simply renamed, or if clients are transferred to a more robust program run by the same CTA- it's all recorded as an addition or closure. Talk about a headache...

Recognizing these kinds of differences is more difficult than playing with the numbers and hoping you're getting it right, which makes a clear, focused snapshot next to impossible if you aren't familiar with the space. To help take the generalized view approach to a more HD level, we filter out programs that don't do managed accounts, programs with less than a 3 year track record, and programs we know to have operational risk, with the goal being the provision of information on programs that you'd actually considering investing in, instead of mixing in penny-stock-esque programs.

What kind of impact does this sort of filtering have?

 

 Filtering

 

So we have a better data set to work with- here's the picture you see when you get closer.

The ascent of managed futures as an asset class began in earnest after 2008's strong performance, but its growth, as far as assets under management is concerned, has been on a long and healthy trajectory. But is it the result of industry wide growth, or a few lucky programs? Well, we knew that normal distributions in finance were somewhat of a myth, but the skew here was a little ridiculous. 

 AUM split

Yep, that's right- the bulk of the industry has less than $50 million in AUM- over 200 programs. Flip it around, and the numbers aren't much prettier. 

 AUM Split big

12 managers- just over 3% in our world- hold over 69% of the industry's total assets. Like we said- far from a normal distribution. Typically, you associate high AUM levels with strong performance, and while many of the big programs are solid investment considerations, at the end of the day, the data continues to suggest that performance flattens out to some extent the larger you get. This means that a good amount of the managed futures industry is being ignored by investors, when, historically, they've been most likely to deliver the larger returns. 

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

 

To be fair, there are no guarantees in this world but death and taxes, and past performance fits into neither of those categories. Still, it's something to consider when weighing size in your allocation process.

So we know that there's been growth in the asset class, but where has this growth occurred? Well, quite literally speaking, all over the world. The following interactive map shows you the location of all the managed futures programs we had data on, and they are literally spread among all four corners of the world.

 

 

View Manager Concentration in a full screen map

 

So the industry has gotten big and sprawling, but, relatively speaking, it's still, in our opinion, far below capacity. What's holding people back? Well there's that pesky track record issue. We've spoken with a fair amount of RIA service providers out there, and have yet to meet a portfolio modeling software firm that includes managed futures in its array of indices- and forget about individual programs. When asked why, the answer is always the same: the track record isn't long enough.

Now, you may be able to find stock data back into the 1800's, and managed futures data simply does not go that far back, but it's also not as short lived as many would have you think. 

 tRACK RECORD

While a sizeable amount of the programs have less than 5 years to their track record, over 70% exceed that threshold . Given that the Small Business Administration projects that 50% of all small businesses fail within the first five years, these track record data points fly in the face of so many of the criticisms out there regarding managed futures programs blowing up and starting over.

Perhaps one of the more overlooked components of managed futures breakdowns as an asset class is the strategy split. Most people who are just basically familiar with managed futures associate it with trend following, but there are many different kinds of strategies out there, varying based on timeframe of the strategy, types of contracts traded, market specialization,  discretionary factors and more. BarclayHedge provides a fairly rudimentary classification system, including systematic, discretionary and options categories. While this really only scratches the surface, and isn't always the most reliable, the split is still pretty telling, in our opinion. The vast majority- as in 94% of the programs looked at- self-describe as systematic. For the investor concerned about codified risk management, this is, in theory, heartening news, but, again, we caution that a more thorough, case-by-case analysis of program strategies is required prior to investing, as just how systematic a program actually is can vary substantially.

 

STRATEGY BREAKDOWN

 

All of this data on industry growth, evolution and composition may be interesting, but what investors really want to know is how a program performs. This is always a tricky question to answer. To begin with, past performance isn't necessarily indicative of future results. Further complicating the matter is the continued request for what "average" CTA performance looks like. We can hope that understanding the variety in shape and size across the asset class provides a glimmer of insight into how "average" performance isn't necessarily the best measure of worth, but the diversity isn't normally distributed among these categories either. What can you do, then? If average performance isn't all that reflective of the asset class, and breaking down that performance by those diversity elements isn't necessarily telling, either, what do you look at?

Well, to start with, let's look at how performance is distributed. We broke down the industry according to compound ROR. Compound ROR is the annual rate of return which, if compounded over the number of years in the period analyzed, would yield the cumulative gain or loss achieved during that period.  It is essentially the average annual rate of return (on a compounded basis). We sifted through the data and this is what we found:

 COMP RORDISCLAIMER: PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

 

That's right- over 40% of programs provided double digit returns on average- not bad at all, especially since the average compound ROR of the BarclayHedge, Dow Jones Credit Suisse and Newedge managed futures indices was at 5.92%. But, again, past performance is not necessarily indicative of future results, and there are risks involved in a managed futures investments. Extended and severe periods losses, known as drawdowns, can and WILL happen. For contrast to the admittedly rosy numbers above, we broke down the industry by max drawdown- or the worst peak to valley loss endured by a program. 

MAX DD


The data shows that over half of the programs we analyzed have experienced max drawdowns between -10% and -30%. If that's enough to give you sleepless nights or cause you to chase profits by darting in and out of allocations, then this asset class isn't for you. If you can keep in mind that these are investments you should hold for 3-5 years and that drawdowns are part of the process, then you'll set yourself up to see better returns from your managed futures portfolio in the long run.

 Speaking of portfolios, though- how much does it cost to build one of those? Managed futures via managed accounts (which we still argue is the most efficient way to access the asset class) has long been regarded as an option for the uber-wealthy and institutional investors only because of the high minimums. If you're considering a program like Winton, with its $50mm minimum investment, this is probably fair. If you're looking at the universe of programs out there... well, not so much.

MINIMUMS

 

Minimums were fairly varied across the board, but that kind of variety is a good thing. It means that there are other points of entry for the discerning investor who is willing to analyze a CTA across a wider selection of components instead of just looking at those with a lengthy track record or impressive AUM levels.  It means that the investor who thought they couldn't access the space actually might be able to do so.

These charts and figures make an important point- managed futures is a little too complicated to take on face value. While the snapshots of the industry we started out with here give you a very basic introduction to the space, this breakdown is meant to illustrate the fact that nothing is as simple as it seems. And even with this data, investors are going to need to gather way more information before they ever make an allocation- delving into the quantitative and qualitative elements that drive each program. If the very idea of all that research sounds exhausting to you, that's because it is. And that's why working with a broker like Attain, who has already put in the blood, sweat and tears needed to compile and analyze all such data, makes so much sense.

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 | Week In Review: Week in Review

In indices, the Dow was up 2.33%, the S&P 500 rose 2.32% posting the best week-end close since May 2008, the Nasdaq was up 2.47% for a fresh 11+ year high, the S&P Mid-Cap 400 E-mini rose 1.41%, and the Russell 2000 E-mini rose 1.51%. In bonds, US 10-year notes were down -1.61%, and US 30-year bonds were down -2.76%. In currencies, the US Dollar was down -0.53%, the Japanese Yen fell -0.97% to hit a fresh 11-month low, the British Pound rose 1.06%, the Euro gained 0.47%, and the Swiss Franc was up 0.49%.

In metals, Gold lost -3.25%, Silver fell -4.70%, Copper was up 0.51%, Platinum fell -0.56%, and Palladium lost -1.16%. In energies, Crude gained 0.17%, Heating Oil gained 0.55%, RBOB Gasoline gained 0.74%, and Natural Gas was up a meager 0.09%.

In grains, Corn was up 4.34%, Wheat gained 4.51%, and Soy was up 2.71% to a 6-month high. In meats, Live Cattle was down -0.58%, and Live Hogs were down -2.22%. In Softs, Cocoa was down -6.39%, Orange Juice fell -1.01%, Cotton lost -1.49%, Coffee lost -2.07%, and Sugar gained 7.40%.

Trading Systems

In day trading systems PSI! TF was up $982.20. On the swing trading side, Moneybeans S lost -$285, MoneyMaker ES gained $995, and Strategic SP was up $1000.

CTAs

We’re now just over halfway through March, and it has not been good to many of the programs we track, with only 1/4 currently posting positive returns for the month. Of the top performers, the majority are trendfollowing and Agriculture programs. On the other side, it has been a bad month for options traders, with all the programs we track in that category showing losses for the month, capped off by a dismal -11.30% estimated for AFB LLC FortyEighter Gold Options. Check out the full heat map below:

 

Program

%**

Max DD*

Strategy Type

Clarke Capital Management, Inc. Global Basic

5.87%

-46.49%

Trendfollowing

Tanyard Creek Capital (QEP Only)

3.52%

-14.17%

Agriculture

Global Ag (QEP Only)

2.67%

-17.57%

Agriculture

Dominion Capital Management (QEP Only)

2.23%

-15.22%

Short Term

P/E Investments FX Strategy - Standard

1.96%

-15.01%

Currency

Robinson-Langley Capital Management, LLC Managed Account

1.51%

-23.68%

Trendfollowing

Paskewitz

1.09%

-18.21%

Stock Index

Rosetta (QEP Only)

0.60%

-39.67%

Agriculture

Clarke Capital Management, Inc. Worldwide

0.56%

-30.83%

Trendfollowing

Mesirow Absolute Return

0.22%

-1.56%

Discretionary

Reynoso Capital Management - Small Accounts

-0.02%

-16.05%

Option

Bouchard Capital, LLC Short Term Multi Commodity

-0.11%

-13.79%

Short Term

NDX Shadrach

-0.12%

-19.38%

Agriculture

NDX Abedengo

-0.13%

-10.28%

Agriculture

Clarke Capital Management, Inc. Global Magnum

-0.17%

-41.50%

Trendfollowing

Auctos Capital Management

-0.21%

-12.25%

Multi-Strategy

Futures Truth MS4 (QEP Only)

-0.23%

-9.18%

Multi-Strategy

White River Group Diversified Option Writing

-0.24%

-15.08%

Option

Emil Van Essen, LLC Combined (Low Min)

-0.47%

-36.21%

Spread Trading

James River Capital Corp. - Navigator

-0.59%

-18.60%

Trendfollowing

Emil Van Essen, LLC Commodity Only (Low Min)

-0.61%

-36.21%

Spread Trading

2100 Xenon Managed Futures (2x) Program:

-0.67%

-18.40%

Multi-Strategy

Covenant Capital Management Aggressive

-0.81%

-20.41%

Trendfollowing

Attain Portfolio Advisors - Strategic Diversification Program

-0.90%

-24.39%

Multi-Strategy

Cervino Diversified Options

-0.96%

-8.34%

Option

GT Capital

-1.14%

-11.79%

Discretionary

Cervino Gold

-1.36%

-6.69%

Gold

Bluenose Capital Management LLC - BNC EI

-1.37%

-9.98%

Option

Integrated Managed Futures Corp. IMFC Global Concentrated

-1.48%

-10.31%

Multi-Strategy

HB Capital

-1.56%

-13.79%

Option

Cervino Diversified 2x

-1.99%

-17.32%

Option

Bel Air Capital Asset Management

-2.28%

-24.05%

Multi-Strategy

Crescent Bay BVP

-2.46%

-32.69%

Option

2100 Xenon Fixed Income Program:

-2.59%

-7.46%

Fixed Income

FCI CPP

-3.03%

-18.73%

Option

Quantum Leap Capital (QEP Only)

-3.29%

-24.44%

Short Term

Bluenose Capital Management LLC - BNC BI

-4.14%

-5.77%

Option

Hoffman Asset Management, INC. Managed Account

-4.70%

-19.38%

Trendfollowing

Futures Truth SAM 101

-6.36%

-12.62%

Multi-Strategy

FCI OSS

-10.17%

-52.73%

Option

AFB LLC FortyEighter Gold Options

-11.30%

-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.