A Turbulent '12 - The Best Managed Futures Newsletters of the Year
December 11, 2012
As the year draws to a close, we find ourselves reflecting on all that has happened. Programs have launched into the limelight while others have shuttered their doors. Managed futures as an asset class has struggled, prompting some to declare trend following prematurely dead. PFGBest shook the industry to its core, and spurred a series of reforms that have made customers safer than ever. Europe continued to plague the markets, with this little thing called the fiscal cliff looming large on the horizon.
Yes, it's been one heck of a year, and we're proud of the research and reports we've put out (and even more excited about what we have in store for you over the next 12 months). We learned a great deal going back through our 40+ managed futures newsletters this year, but that's a lengthy process and a lot of reading for most. So as you prepare to celebrate the holidays and head into the New Year, we've prepared the following list of the 10 most popular Attain newsletters in 2012 based on reader favorites, staff picks, and the amount of views each newsletter had.
So for those doing some managed futures research, those looking or more education, or just in case you missed one of our research pieces – please find 10 of our most important managed futures discussions of 2012 below:
The days following the release of our Semi-Annual CTA Rankings are always busy, with clients and would-be clients alike calling in to get as much information as possible on the select few who make the cut. It should come as no surprise that the CTA, which receives the top ranking, is often the one that gets the most general interest. To help answer this interest, we have traditionally followed-up our rankings release with a newsletter spotlighting said top CTA, but this time around, with the expansion of our rankings to include a wider universe of CTAs, the spotlight writing proved a little more challenging than usual. We had to wonder - who, exactly, is Newport Capital, and what are they doing that's generating so much success in our ranking algorithm?
We had the data for all of the CTAs we track through the first half of 2012, which allowed us to try and answer the question we get on a daily basis: What’s your BEST managed futures program? That question is always a tricky one, as depending on who is asking it, they may want to know any one of several variations on who is best. Best last year? Best for all time? Best risk adjusted return? Best in terms of lowest drawdowns?
What do we base these rankings on? We've dedicated extensive resources over the years to analyzing and testing a rankings system that would best reflect what we believe to be the important metrics for measuring competency in this investment space. Here’s who wound up on top.
While we commonly talk in this space about what to do when staring losses in the face, less time is spent here and elsewhere talking about what to do when you have had success with a program. Perhaps this is something to do with the human condition and focusing on that which causes us pain before considering that which brings us pleasure, or perhaps it is just a simple case of most investors thinking the upside is easy to manage when compared to the downside.
Whatever the case, there have been some questions from Attain clients recently asking what they should do with gains in some programs, and, specifically, what their options are for scaling up the trading of the successful programs in their portfolios.
Now, many futures traders and commodity market investors have no doubt heard of the various money management techniques out there which, in one way or another, add to a position when that position is profitable. This technique is sometimes called pyramiding, pillaring, or margin scaling/trading. The basic idea behind it is to use the “market’s money” to add to positions. These money management techniques are usually thought of and implemented on an individual trade basis, and involve making enough in profits to cover the margin requirement for a new position. But they can also be put into action on managed futures investments in CTA programs by scaling when a manager makes enough money to cover the margin needed for an additional allocation.
It can be difficult to write with any sort of gusto about the technical aspects of CTAs. Sure, one can break down the quantitative nuances between different trend following programs, and if you're numbers nerds like us, you may find yourselves enraptured by how one twist on one metric can produce such unique results. For most people, though, the complex algorithms punctuated by Greek letters are of little consequence; they just want to understand why the program works without getting a degree in advanced mathematics first.
And then there are programs like the Emil van Essen Spread Trading Program (EvE). We spotlighted them a little over a year ago, and, typically, would not revisit the program in a newsletter for another couple of years, but developments in the program and company, combined with increased interest in a manager that has truly made a name for himself over the past several years, warranted some additional attention. Well, that, and they're just a lot of fun to describe. To really understand why EvE is worthy of taking center stage again, you have to look at the big picture- from the manager's background to the evolution of the trading to the goals they have on the horizon.
Some of the sales teams in the industry may prefer to avoid discussing such subjects, probably thinking something along the lines that doing so will “scare away the customers,” but to hear that John W. Henry was shutting down his eponymous managed futures shop was the kind of news that draws us like a moth to a flame.
Here was an industry stalwart in every sense of the word. A man who helped put managed futures on the map, and helped his pocket book to the tune of becoming a billionaire. He is a literal Hall of Famer, having received the Futures Hall of Fame award (whatever that is) from the Futures Industry Association. This isn’t quite Paul Simon hanging up his guitar, or Steven Spielberg deciding to get out of the movie business – but it’s close in terms of shock factor in the managed futures space.
This raises one huge question - well, actually, it raises hundreds of questions - but the big one is this: what in the world happened?
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 shiny, basic charts. 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 showing upward sloping assets under management in the industry.
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.
It’s been over a year since we last dedicated a newsletter to the so-called managed futures mutual fund/ETF, and we thought it was high time we revisited the subject. Our last piece looked at the big name fund operators in the field– namely, the Wisdom Tree Managed Futures ETF (WDTI) and Rydex Managed Futures Fund (RYMFX)- arguing that these products were misnamed and did not give investors the type of managed futures exposure they were likely after when investing. While their performance then and to date has continued to be lackluster and well below managed futures as an asset class, it doesn’t seem to have hurt the popularity of the idea, with several smaller players now joining the fray to the tune of 19 such funds now clamoring after investor’s managed futures money. Hey, Morningstar even made them a fund category (anyone out there still arguing against their being an asset class?).
We found ourselves scratching our heads. Just why is so much money pouring into these so-called managed futures mutual funds when they have done very little in the way of performance? Part of the answer is the classic line from the brokerage side of Wall Street which says stocks (insert ETFs, mutual funds, mortgage backed securities, etc.) are sold, not bought- meaning that money is pouring into these products because that’s what the army of advisers (they don’t really call themselves stock brokers anymore) around the world are pitching to their clients, not the other way around.
But that begs the question… Why are these funds being sold so heartily? Do these advisors really know what they are selling (a recent blog posts says no) when it comes to managed futures exposure? Are the investors in so-called managed futures mutual funds really understanding what they are getting? Well, we’re going to do our part to make sure those investors do know what they are getting, with an in-depth look at these products, and, unfortunately for the product managers, our research into the full universe of these publically traded products unearthed even more levels of complexity than we saw previously.
Without further ado – our look at the world of the $1,000 managed futures investment – the managed futures retail product.
When we originally penned our white paper, How to Save the Futures Industry, we had no idea that we would be staring down the same deficiencies less than a year later. Yesterday we learned that PFGBest has had a customer fund shortfall amounting to approximately $220mm (perhaps dating back to 2010). As the story has unfolded, the details have been at turns nauseating and infuriating, as a web of deceit unravels before our eyes.
MF Global had us angry, but this time, it's personal. Our clients have money with PFGBest. We have money with PFGBest. We were misled by senior leadership that we trusted in business. We were let down by regulators. We were failed by our government.
Enough is enough. Here, we'll break down what we know so far, the possibilities on the horizon, and the swift, decisive action necessary to keep this travesty from becoming the final nail in the coffin of a marketplace that serves as a heartbeat of our global economy. Because, to borrow a phrase from Captain John Paul Jones, we have not yet begun to fight.
We get so caught up in analyzing the compound ROR, max Drawdown, Sharpe ratios and the rest of it… we sometimes forget to keep our eye on the ball and ask one very simple question – how much actual money has this manager made for investors? It is so ingrained in the investor psyche to look at percentage returns (YTD, compound ROR, past 3yrs, etc), that many of us forget to think that these investments are hoping to actually make real money for investors, not just post percentage numbers on a score board.
For instance, in a rather extreme sense, it’s entirely possible to post positive percentage returns, but lose client money. How can that be? The answer lies in the assets under management history of the CTA. We tracked one CTA who was managing under $200K while racking up returns, and then upon getting some serious assets under management (10s of millions) started to have some losses. The small losses on a big number easily outdid the big gains on a small number – resulting in negative overall actual dollars gained/lost numbers.
Many of the trend followers we follow are in drawdowns of 15 to 20 months or more, and a select few have failed to make new equity highs following the boom times of 2008.
Further struggles are evident when we look at the Newedge Trend Following Sub-Index, which is down -4.73% year to date, down -5.89% since the bottom of the financial crisis in March 2009, and down -9.77% since July 20th of this year. We wish we could say it was just the Newedge Index, but it’s not. The BarclayHedge Systematic Traders Sub-Index is down -2.23% year to date, as well.
It’s all lead to more than a couple people we’ve talked to recently uttering those words we actually love to hear: “is trend following dead”?
IMPORTANT RISK DISCLOSURE
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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.