One of the best things about being in an investment which can do well when markets are down is the fun you can have at cocktail parties, in the locker room at the golf club, and dinner with friends. A -334 point down day in the Dow and around -5% move off of all time highs starts to bring out the shrugs and exasperated expressions, as those well to do’s around you murmur their version of the timeless classic:
“Tough day in the markets today, huh?”
And here’s where it gets fun… because our go-to response is usually:
“Sure was tough… we hope they go to zero.”
For those from the world of traditional investing, or better yet – those who’ve only been around the last five years – this can be a bit unsettling and cuts a lot of conversations short.
“Go to zero? What?”
While we don’t actually want market to go all the way to zero (we still want a functioning society and all of that), we welcome with open arms the volatility that would accompany some fear and panicked selling. Because, you see, we’re mostly in the business of volatility. Or to be more precise – the business of profiting off of volatility expansions from periods of consolidation and dampened volatility.
As we have laid out before, managed futures tends to do well during market crisis periods because of their ability to go short global markets. In 2008, managed futures programs found themselves short nearly every type of market not considered a safe haven, be it stock indices, energies, foreign currencies, metals, grains, or softs. Fast forward to the past few weeks, and we’ve seen several managed futures programs start to initiate such short positions in markets like US and non-US stock indices, energies, foreign currencies, grains, and metals.
Quite simply, we’re cheering the markets to zero because the lower they go in this move down, the better for our clients in their long volatility investments. Of course, past performance is not necessarily indicative of future results and there are clients and programs and positions which may lose money in an extended move lower. But generally speaking, such down trends work to the benefit of the managed futures space in our experience.
So for now we’ll be cheering… “Go to Zero!”
(Disclaimer: Past performance is not necessarily indicative of future results)
Chart via Finviz.com