What would you trade with $10K, $50K, $100K, $250K ?
March 19, 2007
What's the ideal portfolio mix - all CTAs, a mix of day and swing trading systems? Those investments with the best numbers? These are tough questions, and the answers in many cases will depend on what the individual investor is after. Some may wish to maximize returns on pure risk capital - while others may be willing to invest $100,000 - but would pull the plug if down more than 25% or so.
We've put six different portfolios together using our online Portfolio Wizard in order to highlight some of the logic one may use in creating their own portfolio. The Portfolio Tool is Available Here: Multi CTA/System Portfolio Wizard
THE COMPOSITE PERFORMANCE RECORDS BELOW ARE HYPOTHETICAL AS THESE TRADING SYSTEMS AND ADVISORS MAY NOT HAVE TRADED TOGETHER IN THE MANNER SHOWN IN THE COMPOSITE. PLEASE VIEW THE IMPORTANT RISK DISCLAIMER REGARDING THIS PORTFOLIO BELOW.
Sample Portfolios
Attain's belief is that the base of any futures based portfolio should be a professionally managed CTA program. There are several successful trading systems out there, but for a base investment - a CTA usually provides more consistent results which one can build on. There is usually a longer track record for CTAs, as well, which can give investors starting out more confidence.
For investors with more capital - the goal should be to mix and match different types of CTAs and trading systems with the goal of producing as smooth an equity curve as possible. For example, if trading an advisor like World Capital or Zenith who does poorly when volatility spikes, think of adding a system like AG Mechwarrior ES, which benefits from volatility spikes. Likewise, if already trading an option selling CTA - new capital added to the account should go to CTAs like NDX Capital who does Hog spreads and isn't correlated to the stock market like the base investment. Adding those investments which do different things should keep the equity curve (a line graph of your portfolio's net value) from sharp spikes up and down, which we refer to as smoothing it out.
The most important thing is to not to fall into the trap of merely creating portfolios of the top performing investments. Instead, build portfolios that make sense on a fundamental level as well as a statistical one. What do we mean by that? Well - try and diversify between markets, time frames, and developers to get as much diversification as possible. While the portfolio returns may not be as high as a composite of the top performers this year - the long term prospects may be much better as you will have removed some of the historical bias built into the portfolio.
Six different portfolio are outlined below. Click on the portfolio amount in blue to view the full performance report on each.
| 1 CTA, 1 Day Trading System | |
| Avg Ann ROR = 52.90%, Max DD = 20.20% |
There's obviously not a lot of room here for a broad array of diversified investments, and the choices are necessarily limited for that reason. One CTA which is available at a minimum of just $10,000 is Crescent Bay Capital Management, which utilizes e-mini S&P options in order to keep the minimums at a low level. There is still room for diversification, however, especially if adding a day trading system which has no end of day margin. And for that reason we would add a low minimum day trading system like Bounce eRL or OPXP to the portfolio.
| 1 CTA, 1 Day Trading System, | |
| Avg Ann ROR = 73.30%, Max DD = 9.80% | 1 Swing Trading System |
This starts to open things up, but we're still below the $50,000 minimum most CTAs require as a minimum investment. So we're left with the small minimum CTA Crescent again as a base, and will add the Bounce eRL day trading system again. But we do have some more room to diversify, so think of adding a swing trading system as that style is not yet represented. We decide on AG Mechwarrior ES as that system is designed to do well in times of volatility spikes - when Crescent, an option seller could do poorly.
| 1 CTA, 1 Day Trading System | |
| Avg Ann ROR =44.60%, Max DD = 14.70% |
At the $50,000 level - several possibilities open up with numerous CTAs having a $50,000 or lower minimum. We choose FCI, a unique CTA which sells options not on stock indices, but on commodities like Corn and Crude Oil. This decision is based on it being fundamentally different than our "normal" investments in stocks and mutual funds (meaning it won't much care if the stock market crashes), but also on it being among the top ranked in Sterling Ratio, which measures return per unit of risk as measured by average annual drawdown. While FCI's minimum is $50,000, we can still add a day trading system which uses up zero end of day margin. The choice is once again the relatively quiet and consistent Bounce eRL day trading system.
| 1 CTA, 1 Day Trading System | |
| Avg Ann ROR = 41.10%, Max DD = 7.90% | 1 Swing Trading System |
At this level, we start to see the benefits of adding systems onto a CTA base. The selections for rounding out the portfolio are one day trading systems (again Bounce eRL) and one swing trading system (again AG Mechwarrior ES). There are other systems and CTAs which would have made the portfolio "look" better, but this portfolio has a better chance of success in the future in our opinion, because of its good balance between a CTA, day trader, and swing trader.
| 2 CTAs, 1 Day Trading System | |
| Avg Ann ROR = 46.50%, Max DD = 11.70% | 1 Swing Trading System |
At $100K, we get to explore combinations of two $50K minimum CTAs - and our choice is to use the same portfolio as we would with $75K, but add the Argus CTA. If you drill down into the Argus results, you'll probably ask why we would choose a CTA that had a 20%+ drawdown last fall. Well, for one it has a very low correlation with our base CTA- FCI at 0.18. It also is doing something different, which we like on a fundamental level. But the main consideration is that our profile is that of an investor who has other investments in stocks and mutual funds. With Argus skewing its trading to the bearish side, its likely to do well when those "normal" investments are not. That may not be enough to have me trade it on its own, but it makes sense as part of the bigger portfolio when its poor environment (rapidly rising market) is likely good for swing trading system AG Mechwarrior ES and my "normal" portfolio.
| 4 CTAs, 2 Day Trading Systems | |
| Avg Ann ROR = 41.30%, Max DD = 3.20% | 3 Swing Trading System |
Real diversification starts to apply at these levels, as we're able to look at those CTAs with minimums at $100,000 or more and in turn spread assets among four different CTA programs. The additions are World Capital - which uses Iron Condor Spreads (simultaneous sales of put and call credit spreads) and NDX Capital - which does something completely different in trading Hog spreads. With World Capital in there, we do have exposure to a volatility spike, so keeping AG Mechwarrior in there is important. But there's still room for more diversification, and we end up adding the full suite of Bounce systems (2 day trading, 2 swing trading). This gives our day trading some market diversification as the Bounce system operate on the eMD and eRL - and adds a 2nd and third market to our swing trading. For those who can take on more risk - possibly adding a new system like Signum eBL or Ultramini eMD at these levels can make sense, as the solid portfolio base can allow for a risk on 10% or so of the portfolio.
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$1,000,000
+ Portfolio
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Call us for details 800.311.1145 |
At $1 Million and more - we're talking up to 10 different CTA programs and a full suite of systems trading more markets than just indices (think Mesa Notes and Jaws US 60 in the interest rates). On the CTA side - making sure you don't have too much of any one thing (like naked short options) in the portfolio is paramount to success. It's also important to think not just in percentage terms - but in hard dollars at these levels as well. For example, there may be a CTA which has no correlation to the portfolio and does something fundamentally different (a seemingly great fit); but which has a high drawdown number, say -40%, that scares you away. Stop and think of what that means in dollar terms before dismissing the CTA as a viable addition. If you are to allocate just $50,000 to the CTA, that 40% drawdown is just $20,000 - or only 2% of your overall portfolio. That is well worth the risk for the benefits of diversification the addition could bring.
- Jeff Malec
IMPORTANT RISK DISCLOSURE
Futures based investments are often complex and can
carry the risk of substantial losses. They are intended for sophisticated investors and are not suitable for
everyone. The ability to withstand losses and to adhere to a particular trading program in spite of trading
losses are material points which can adversely affect investor returns.
Feature | Week In Review | Chart of the Week |
Feature | Week In Review | Chart of the Week |
***Overview***
US Stocks moved lower once again last week as investors continue to be cautious ahead of this week’s FOMC number. The SP cash index ($SPX.X) actually hit new yearly lows on Wednesday at 1363.98; but quickly bounced back and actually finished positive on that day. The market continued to rally on both Thursday and Friday as well - but still finished the week in the red with SP futures falling -1.30% while DOW futures dropped -1.31%. Tech stocks weathered the storm a little better, with NASDAQ futures only falling -0.22% (approx 4 points) for the week. The weakness carried over into the Smallcap’s however with Russell 2000 futures losing -1.17% and SP Midcap 400 futures slipping -1.35%.
The move lower in stocks was in spite of energy prices falling last week. Prices were down across the board with Crude Oil futures falling -3.55%, Natural Gas lost -2.57%, Heating Oil dropped -1.48%, while RBOB Gas futures only lost -0.34%. The lower prices were a result of very bearish (more supply) inventory reports on Wednesday and Thursday.
Also contributing to the weakness in the stock market is the further decline in the US Dollar. Dollar Index futures lost another -1.03% last week and some analysts are speculating that the greenback is headed for another extended decline. Currencies have been in the spotlight for most of the last 3 weeks, although most of the speculation has been on the now famous Yen carry trade that so many hedge funds supposedly put on. The Yen continued its rise last week gaining +1.08%, while Eurocurrency futures were up +1.45% as the EU continues to raise interest rates.
Elsewhere in commodity trading metals rallied with High Grade Copper gaining +8.15%, Silver up +1.879%, and Platinum moving +1.45% higher. Grains were down for the week with Wheat futures falling -3.31%, Corn futures down -1.16%, and Soybean futures losing -0.82%. In the soft’s Sugar futures fell -2.47%, Cotton futures moved -1.08% lower and Coffee futures were down -1.91%. Finally Meat futures were hit really hard with Lean Hogs falling -5.30% and Live Cattle futures losing -3.65%.
***Commodity Trading Advisors (CTAs)***
The official February CTA Results are finally in, and to no one's surprise this month leaders were those strategies whose performance is NOT directly tied to the stock market. Top performers included: Dekker Capital Management 3x: +15.6%, Argus Capital Management: +7.8%, Dighton Capital USA: +3.8%, and FCI: +0.4%
Of the above, Argus was the lone stock index program that performed well. Argus is an options selling CTA with a bias toward the call side of the market. In general terms the strategy will likely over perform in down or sideways markets while experiencing some market pressure during fast rising markets. You can learn more on Argus from our October 16, 2006 newsletter: http://www.attaincapital.com/alternatives/alt_oct1606.htm#Topic.
Other CTA results can be found here: http://www.attaincapital.com/cta-placement.php
***Day & Swing Trading***
Stocks showed more signs of weakness on Tuesday and Wednesday as they made another attempt to break the yearly lows made the week prior. Recently, the results from Asian equities have dictated the direction of early trade in European and U.S. markets.
Day trading systems cheered on the increased volatility on Tues and Wed but struggled with the choppy conditions on the other three days. The top performer for day trading systems was Omega3 v1 Dax with profits of +$2,734.66 for the week. BWT Zones Classic SP has been on fire in the month of March and tacked on an additional +$2,650 in profits last week. Rayo Plus has struggled over the past six months but was up +$1,264.24 for the week. Other results were as follows: Russell Daytrade eRL +$490, Impetus eRL +$150, OPXP eRL -$811.20, Compass SP -$1,150, Phi Plus Dax -$2,281.80.
Swing systems were mixed in terms of direction but the systems that were holding short had the most success last week. Systems that were short include Tzar eRL which made +$980, Tzar ES +$925, Tzar NQ +$85. A few systems holding long positions didn’t have favorable results but made decent comebacks on Thurs and Fri to salvage further losses. Those systems include Seasonal ST ES which was down -$925 in open trade equity, SeasonalST eRL -$980 and Adaptive US Index -$3,628.
***Long Term***
The interest rates sector was fixed in a mostly sideways consolidation phase last week as mixed signals from the economic front and worries over the sub prime mortgage fallout did little to shock the market out of the current 15-day range. Economic releases are on the sparse side this coming week, but the FOMC policy statement on March 21st could get the market on the move if the Fed decides to change its recent bias. Market pundits look for no change in rates with an inflation bias still intact after last week’s wholesale and consumer prices rose more than economists forecast last month. The recent volatility and lack of trend has sent the long term systems to the sidelines for the time being searching for a breakout of a new trend.
Currencies action last week was again volatile as differing economic data from the U.S. and abroad coupled with continued worry of the Yen carry trade kept the Japanese currency and the U.S. dollar in a sideways to lower trade. The Europeans actually seemed to find a bit of a bid on ideas of higher interest rate moves in the near future as the Euro posted 3-month highs on worries of an economic heat up. The report schedule for the coming week looks to be a little light, but with worries of accelerated inflation in Europe and a policy statement by the FED in the U.S. market trending news could be in the offing. The recent volatile swings have been had on long term trend followers as most systems remain on the sidelines.
Soybeans and soybean products posted a slight correction last week, but ideas the upcoming soybean crop in the U.S. might be short as farmers plant corn on soybean acres due to ideas of better returns did spark a bid under the market. The live cattle market posted moderate losses due to a steady cash market and on ideas the product market may have put in a seasonal top despite b consumer demand and tightening in supplies. Aberration currently is long BO making +$1,158.00 (open trade) and long LC making +$960.00 (open trade).
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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.