April 11, 2019
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No, we didn’t miss this headline. And we haven’t just been hiding our heads under a rock pretending to not have seen it. We definitely saw the news of Vanguard launching a commodities product. But unlike Josh Brown, this doesn’t seem like “lights out” for the managed futures space.
Now, don’t get us wrong – seeing Vanguard coming into the commodities space at 20 basis points should worry any active managers in that space. The days of 2 and 20 are mostly gone, but this is 0 point 20 (0.2) and 0. A new low bar has been set by the people who excel at setting very low bars. Vanguard has amassed trillions in assets, mainly by being the COSTCO of investing (without the membership fee). Just come get as much stuff as you want for super low prices.
Here’s Bloomberg extrapolating their growth in assets out a few years in the race to $20 trillion they are in with Blackrock.
But, from what we see, this is more of an attack on long-only commodity funds than ‘managed futures’ per se, as the strategy appears to be a portfolio of long commodity exposure with TIPS mixed in. Here was the description in the Vanguard press release.
Vanguard Commodity Strategy Fund will seek to outperform the Bloomberg Commodity Total Return Index by investing in commodity-linked derivative investments, such as commodity futures and swaps, collateralized by a mix of Treasury bills (T-bills) and short-term TIPS, which add an additional layer of inflation protection.
Here’s how the Bloomberg Commodity Index has looked over 16 years. No wonder they’re only charging 20bps.
Source: Managed Futures = Barclayhedge CTA Index
We’ve been hammering the ‘long and wrong’ is bad in commodities drum for a while now, because of this poor performance and because of the huge volatility. And loved seeing one of Ritholtz Wealth Management’s bullpen aces – Ben Carlson – tackle this subject in his own unique way, outlining that trend following rules are the best way to gain meaningful exposure to the commodity markets.
One last thing, this Vanguard fund will essentially be an oil bet in disguise. Most of the commodity indices are heavily skewed towards the energy complex and crude oil in particular, with the rest of the exposure mostly in metals. So, dream all you want of that field of corn or cotton and exposure to inflation in such markets in places like South America or Australia. You’re not going to get any return from those markets in a ‘commodity index’ product unless oil and metals play along. And if you’re basically just betting on oil, there’s a lot better ways to do it than the inefficient access point of commodity index products.…and one very bad way to do it named $USO.
If you’re dedicated to having some commodity exposure, don’t be afraid to avoid the long only commodity index products, likely including this Vanguard one. And instead look to investment programs which go long and short commodity markets (here’s a good place to start, the database with a complete list of all the managers who make up the Barclay hedge CTA database).
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.
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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.
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May 3, 2019
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