What’s wrong with people? Why do we love to see blood and guts, an accident on the side of the road, and John Paulson’s hedge fund losing money? For whatever reason, people love to see a train wreck. We got 100 times more views on our post ‘The trade that killed Dighton Capital” than we did on posts talking about programs who are doing well in this environment.
But while recent volatility may have been detrimental for traders like Dighton and FCI, it bears repeating that it has been largely beneficial for others. Those have mostly been so called ‘traditional’ systematic multi-market managed futures programs which are long volatility programs through some sort of trend following approach; but there have been a few other types of programs which have earned their stripes during this volatility spike.
One such CTA is Roe Capital, whose Monticello program is estimated to be up 8%, while the Jefferson program is up 7% [Disclaimer: Past performance is not necessarily indicative of future results]. This is a big result for them, after enduring losses in 6 out of 7 months to start the year and on a new max drawdown. A large loss during this volatility spike would likely have spelled the end for Roe Capital (and sold a lot of newspapers), but we’re happy to report a different ending for this story.
We profiled Roe back in 2010, and the mechanics remain the same. Both the Roe Capital Monticello Spreads Program and the Roe Capital Jefferson Index Program focus exclusively on US stock index futures markets. We got in touch with the manager, John Roe, to get his take on it, and to explain why and how the program has excelled during this volatility spike (when past performance showed them as more of a low volatility performer):
There are several positions that have been working for us this month, most notably the positions that relate to buying short term weakness and selling short term strength. Part of our trading model uses a run analysis to sell strength in a structural bear market, i.e. rallies that appear in the midst of panic sell-offs. Then when the market resumes it downward spiral, given enough weakness, we reverse our position by buying into that weakness and targeting a return to prices which occurred in the previous day’s trading range. Our risk on this trade is low relative to our profit target, which expands and contracts with the trading range.”
The beauty of this trade is that we reverse long only after a profitable short trade, only during the day session, and at twice the position size of the original short. So we add additional risk only after taking profits and during a time frame when our stops are defined and actively working in the market. This position filter permits us to reduce our leveraged exposure to the market overnight and increase it during the day when we have an active, tighter stop and a wider profit target. But where the trade really succeeds is that it seeks to take on more risk only after it profits; that cushion allows us to take advantage of the volatility, while limiting the potential of getting hurt by it. And when we win on both the short and the double long, it’s a home run.
That may be a little too technical for some, but it offers unique insight into how the Roe program works. Essentially, it loves periods like last week when we saw the market down 600, up 400, down 300, and so on. That sort of back and forth action fits right in with what their models are trying to do, and usually comes in a period of declining volatility. But when that sort of back and forth happens amidst expanding volatility where the daily ranges are bigger – Roe isn’t hurt by the rising volatility, but helped by it.
Roe’s got a little while to go before getting back to equity highs (making this a good time to consider adding the program), and those losses surrounding the Japanese earthquake worry us some; but it was high time we said goodbye to the blood and guts on the front page, and tried to profile a feel good story (even if it doesn’t sell well).
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.
The programs listed here are a sub-set of the full list of programs able to be accessed by subscribing to the database and reflect programs we currently work with and/or are more familiar with.
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. Individuals cannot invest in the index itself, and actual rates of return may be significantly different and more volatile than those of the index.
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.
Limitations on RCM Quintile + Star Rankings
The Quintile Rankings and RCM Star Rankings shown here are provided for informational purposes only. RCM does not guarantee the accuracy, timeliness or completeness of this information. The ranking methodology is proprietary and the results have not been audited or verified by an independent third party. Some CTAs may employ trading programs or strategies that are riskier than others. CTAs may manage customer accounts differently than their model results shown or make different trades in actual customer accounts versus their own accounts. Different CTAs are subject to different market conditions and risks that can significantly impact actual results. RCM and its affiliates receive compensation from some of the rated CTAs. Investors should perform their own due diligence before investing with any CTA. This ranking information should not be the sole basis for any investment decision.
See the full terms of use and risk disclaimer here.