Slaves to the Calendar

Those who “run money” for a living (do people still use that term?) probably get the majority of their gray hairs in the final few days of each month, and in December of each year; waiting to see if the last day of the month or last month of the year will push their performance track record into the black or red for that month.  A quick up tick in the Yen, or few basis point move in the 10 yr note over the last few days of the year can mean the difference between posting a positive number or a negative annual number. Now, we can all realize that it is completely arbitrary where the markets move any one day or week – meaning a shift of 0.50% to 2.50% over such a period probably shouldn’t be the basis for checking whether a manager was successful or not that year.

But the human brain does some really weird stuff around the end of the year. Those small insignificant moves which push returns just this side or that of even quickly translate into all sorts of investor thoughts such as “they’ve lost money in two of the past three years”, or “they haven’t had a losing year in 6 years”, and so on. And those thoughts often lead to real decisions on whether to allocate to a manager or stop an investment.

So do managers in control of billions of dollar really pin their hopes and dreams on how performance stands at the end of an arbitrary date on the calendar… You bet. They hate it, to be sure; and are only too willing to talk of rolling returns, averages, and the utter nonsense which is the annual return – but the fact of the matter is most investors still hone in on the annual return above all else. We’ve all done it, asking “how did they do during 2008?”, and “they really struggled in June,” and so on.

Add in the annual reports of the top hedge funds which make the rounds this time of year and this type of behavior is reinforced over and over. You rarely see mention of how the top guy did in December of the prior year, or how they’ve started out in 2014… it’s all about the Jan 1 to Dec 31 period.

Which got us to thinking… just how silly is this devotion to the calendar? To answer that – we tweaked the daily returns of the Newedge CTA Index a little bit (and by a little bit, we mean little). We “moved” the year forward by 1 day, 3 days, and 5 days – considering the year Jan 3 to Jan 2 of 2014 for the “Plus 1 Day”, and so on.  The results were surprising – with the annual performance different by over 2% between the best performance (the actual calendar year) and the plus 3 day adjusted year. You can also see rather large differences in the monthly numbers – with the ‘Plus 1 Day’ year only having 4 losing months versus 5 for the calendar year.

Slave to the Calendar(Disclaimer: Past performance is not necessarily indicative of future results)
Data Source: Newedge

So is it silly? Yes… Does it make no sense? You bet… Do investors cling to those monthly and annual numbers like the directions on a treasure map to El Dorado – definitely. So investors – cut your managers a break if they are down 5 months in a row or posted a slightly down year – it could just as easily have been 3 out of 5 losing months or a slightly up year with the dates shifted slightly. The real information is in the overall picture. It’s in the averages and the risk adjusted ratios and the rolling returns and the rest, not how the returns fell on an arbitrary end to a month.  And managers… don’t hold your breath waiting for investors to stop giving overdue relevance to the calendar year returns – it’s how their brains work.

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Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, RCM's own estimates of performance based on account managed by advisors on its books, 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, RCM's own estimates of performance based on account managed by advisors on its books, 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.