June 1, 2012
Attain Capital
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As we’re watching stocks plummet today (along with most of the futures board), we’re not too concerned. Several of the managers we track are doing well today, having positioned themselves for this sell-off. That being said, we’re sure others are feeling the pain, particularly those who have chosen commodity exposure via long-only commodity funds. We posted earlier today on their underperformance relative to purchasing a December futures contract in the indicated market and rolling annually, but that pain has been echoed in an article from Reuters entitled Are commodities at risk of de-financialisation?:
But even before the super-cycle ran out of momentum, passive investors in commodity futures and options were struggling to make money. Returns on the GSCI and its derivatives have been lower than U.S. equities over almost any time horizon since 2000.
Unlike an investment in equities, commodity futures do not provide a stream of dividends. Instead investors have been hit with the cost of storage. Passive index investors have been hit by the reduction in bond rates, which has hit the collateral yield on the safe financial instruments used to collateralise their holdings of commodity futures.
There is also evidence that some commodity markets have become overcrowded, with index investors competing away the risk premium and roll yields that existed before the asset class became fashionable in 2004.
For a time, the surging spot prices for a range of commodities, from crude and copper to iron and cotton, masked the deterioration in underlying performance of the indices. But as the super-cycle gives way to a period of plateauing prices, the problems with a passive long-only exposure are becoming more apparent.
We’ve been saying this as loud as we can for what seems like forever, but the article is not without holes. See, the author functionally concludes that people will turn away from commodity futures altogether, regardless of the wrapper for the investment. But there are other ways to gain exposure (*cough cough* managed futures) that don’t rely on a super-cycle to generate profits. When you can position yourself for up AND down movements, it’s a different story. The article touches on this, but doesn’t quite get it, saying:
The most radical strategy is to allocate funds to a hedge fund with a wide mandate to take long and short positions.
Only the most radical, hedge fund long/short strategy is likely to work on a sustained basis. The others have already begun to compete away the returns to curve optimisation etc as the strategies become more widely adopted.
The problem with hedge fund strategies is that returns are to the skill of the hedge fund manager rather than intrinsic to the commodities themselves.
Those hedge funds are CTAs, and we wouldn’t call the well-established managed futures universe some kind of radical, unknown investment opportunity. Maybe in media spheres, but not for investment professionals (at least, it shouldn’t be). Further, a closer look at the managed futures space reveals a majority of strategies that are not reliant on individual manager discretion, but systematic approaches to trading that take emotion and judgment out of the equation. That doesn’t guarantee a win, particularly if you’re only selecting one manager to allocate to, but part of the benefit of a balanced portfolio in managed futures is the ability to more effectively manage risk.
So, is the financialisation of commodities going away? Well, if that means investors will stop piling into long-only commodity funds that are doomed to underperform on a regular basis, we hope so. But is exposure to commodities via futures a losing proposition? Not necessarily, especially if you’re doing it right.
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.
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.