Did ‘Risk On’ just sink Managed Futures again?

While the buy-and-hold crowd join the robots in pumping prices up- and then down, and then up and so on – are rejoicing today after stock market gains of 3% and more – managed futures managers may be saying “Not again…”

While not as fully short as they were at the beginning of October, most systematic multi market managed futures programs are still on the short side of the “risk on” assets (stocks, grains, metals, foreign currencies) and long side of the “risk off” assets (USD and bonds), meaning they are essentially betting on a continued ‘risk off’ environment. This has pushed many programs to small gains for December, as evidenced by the Newedge CTA Index up about 1% for the month.

A good portion of those gains will likely be given back after today, unfortunately. This is the same sort of pattern we saw at the beginning of October, when the sharp rally caused losses, and the same stance (although greatly reduced) they had at the end of November.  Both of those ended in less than ideal results (although the November move was more an open trade loss than realized losses), and now today is threatening more of the same.

Being In the holiday spirit, we’re looking for a silver lining here – thinking that maybe another failed move lower means we’re just one step closer to the real move happening. As we’ve explained before, traditional managed futures programs with a trend following type profile are designed to participate in many false breakouts, so that they can be certain of being in the real breakout when it does happen.

While each move may be independent of the ones preceding and following it, they aren’t as independent as a completely random event like the flipping of a coin. In that instance, despite the probability of a coin coming up heads or tails being 50% over many, many flips – the fact that the last flip was heads has no bearing on whether the next flip will be heads. We’re not so sure there isn’t some interdependence in market moves, however. Unlike the coin, the fortunes, hopes, and fears of market participants are interrelated and dependent on what has transpired before, and what they believe that experience means for the future. Those interdependences are infinitely complex, and managed futures managers aren’t trying to find the Da Vinci Code to unlock them – but it isn’t too far of a stretch to think that another trend reversal may mean we’re another step closer to the day/week/month when the trend extends, instead of reversing… is it?

Disclaimer: Past market movements are not necessarily predictive of future moves.


One comment

  1. Diversification ACROSS CTAs is just as important as diversification INTO CTAs. Not all CTAs lost money on December 20th (as a clearly self-serving statement, Brandywine for example posted a solid profit). It’s important to combine CTAs that incorporate a range of trading strategies, each dependent on a unique “return driver,” into a truly diversified portfolio.

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Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, 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.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website 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.

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 CFT rules The disclosure documents 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. Investor interested in investing in any of the programs on this website 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 and 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.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.

Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, 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.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website 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.

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 CFT rules The disclosure documents 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. Investor interested in investing in any of the programs on this website 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 and 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.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.

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