Managed Futures end Q3 with 0.50% gain in September

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

As September ends, so does the third quarter of 2011.  According to Newedge’s numbers, managed futures was up 0.50% for the month, bringing it to -1.79% year to date.

In looking back at Q3, it was a bit of a roller coaster ride for managed futures investors.  The European Debt Crisis continues to weigh heavily on the markets, including foreign currencies, which have seen significant intervention as nations scramble to protect their economy. Here in the US, the bond market continues to flex its muscles as the Fed now seems intent on rallying the long end higher. Overall, these sure feel like the most difficult market conditions since 2008, when the world was brought to its knees thanks to the financial crisis (it could easily be argued that the ’08 chapter was just the first act and we’re still in the financial crisis).

For most managed futures investors, the last 3 months have been okay (but not great).  Long volatility programs saw initial losses as the leg down in commodities and stock markets was a trend reversal, yet are now in line with the trend lower, while short volatility option sellers and discretionary traders had a very rough quarter due to the exploding volatility.   The first signs of trouble for discretionary traders came in July with Dighton Capital closing the month down -32% as they held short in the Swiss Franc while it screamed upward. Alas, that trade has become the poster child for why mean reversion strategies don’t work. Meanwhile, option sellers saw their day of reckoning in August when short volatility traders stepped in front of the proverbial volatility freight train. Thankfully, FCI and the other short volatility programs we track, including Cervino and White River, where able to stop the bleeding and bounce back with a strong month of trading in September.

On the other side of the spectrum, most multi-market traders posted strong numbers in Q3 as traders took advantage of strong trends in bonds, precious metals, grains, and foreign currencies. Top performing managers in the trend following spectrum included Clarke Capital, which saw gains in the Worldwide, Global Basic, and Global Magnum programs in all 3 months of the quarter. Unfortunately, short term multi-market traders did not do as well, with programs like Bouchard Capital Management and Dominion Sapphire struggling for most of the quarter.

The top performing sector overall was our “catch all” category called specialty, which includes mostly single market and/or sector specific traders that we don’t want to lump into the multi-market sector.  Top performing programs in this sector for the quarter included 2100 Xenon Fixed Income, which took advantage of the upward trend in bonds, as well as PE Investments Standard, which saw success shorting foreign currencies over the last two months.  Both of these programs stepped up to the plate and showed what makes them a valuable addition to a managed futures portfolio in what was otherwise a very turbulent quarter.

What will the 4th quarter bring? With no end to current market volatility in sight,  we’ll have to wait and see.

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