How Consistent are your Investments?

One interesting thing we’ve seen out of the bout of recent volatility has been the quick defense of the stock market. Where one might expect cries of panic or fear, or at least caution, we’re reading articles and hearing talks which say something along the lines of:  this is just normal gyrations, just noise to be ignored, just part of the game (check out our recent football analogy of investment styles). The long term investor, they say, barely knows it happened when looking back at their investment performance over the 1,3 or 5 year period, where the long-term-edness (we made that up) of stock market investing wins out. Yahoo Finance had this to say on the day of the Dow’s big drop:

It’s also worth putting today’s selloff in context. The market is still only at a 10-month low, meaning investments are still worth more than they were as recently as a year ago — and you’re likely way ahead if you’ve been in the market for longer than

that. Including its recent losses, the S&P 500 is still up more than 75 percent over the last five years, and it’s nearly tripled from its lows in early 2009.

“In times like this, it’s important to remember your investments are designed to carry you through decades, not days,” Lane Jones, chief investment officer with Evensky &Katz wrote in a note to clients today. “It’s important to stay focused on the long-term.”

The contrarian in us says the worst of the losses in the stock market probably aren’t over if the general response is a sort of – “it’s nothing” approach; but the analytical side wanted to see how the stock market’s long-term-edness lines up against other asset classes. Maybe stock investors are on to something here, and stocks really do look much less volatile and less risky on a longer time frame? Maybe the key to stock investing is just ignoring the interim, and finding everything all hunky dory after a few years. Which led us to wonder just how other asset classes do when looking through the same lens. Are investments in stock markets or ETFs like $SPY $DIA $QQQ or $IWM really any more or less consistent than other investments, specifically those in the managed futures realm we deal with?

To see just how smooth returns look over longer time frames, we took a look at the rolling returns of both managed futures (via the Newedge CTA Index) and the stock market (via the S&P 500) over 12, 36, and 60 month windows of time from January 2000 through December 2014; then measured the percentage of time each had lost money. If the theory is, ignore that short term moves lower because over the long term the market comes back, we would expect to see a very small percent of 3 and 5 month windows in negative territory for the stock market… How did it actually look:

Percentage of time Market is down(Disclaimer: Past performance is not necessarily indicative of future results)

Whoa… turns out stocks are actually negative on a 5year lookback about a fifth of the time, and in the red on a three year lookback about a third of the time. Now, we’ll concede that they look very good on a three year basis in terms of barely ever losing more than -5% over a three year period, but it turns out managed futures can hold a candle to that flame all day long. You see managed futures have demolished stocks when considering them on the downside; with no losses more than -10% in any of the 12, 36, or 60 month periods.

Put another way – if you could have mustered allocations to the components of the Newedge CTA Index at any point in the past fifteen years… you would never see losses more than -10% for ANY one, three, or five year stretch (and just a handful of periods below -5%). Stocks can’t touch those statistics with a ten foot pole. For more on Managed Futures overall performance profile, check out our Performance Profile whitepaper.  Impressive? Sure. But realistically, you can’t invest in a CTA index. You invest in actual programs, some which have performed better than the benchmark indices, some which have done worse. For that, we suggest checking out our recently updated Semi-Annual Managed Futures Rankings.

So keep telling investors not to panic when stocks go down. But realize they’re complacent with table wine (instead of the premium) in this category – it’s a function of time more than of the investment class; with most asset classes sharing the ‘time heals all’ profile.

 

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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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