June 2012: Make or Break for Managed Futures
Our weekly newsletter is up, and we’re looking forward again. This time, our glass-half-empty side is considering what could go wrong this month, and the consequences for managed futures as an asset class should the worst-case scenario come to pass…
Managed Futures Mutual Funds May Update
We’ve been following the new entrants into the managed futures mutual fund space this year, and our opinion of them hasn’t gotten any better. With another month of performance data on the books, we remain convinced that these mutual funds are a poor substitute for true managed futures exposure.
Damning Evidence in the MF Global Case
While we were busy writing our newsletter Monday and keeping tabs on whether the markets would keep May’s performance going, the Trustee for the MF Global case released his 275 page “Investigation Report.” You can download it here.
It’s obviously a long read, though the meatiest part of the report starts on page 68, if you’re up for it. That being said, in our opinion, this report is pretty damning- almost breathtakingly so. From Corzine to O’Brien to JP Morgan to under mentioned actors like BNY Mellon, this catastrophe was not a whirlwind crisis that caught everyone off guard. Those in the know saw it coming for miles, but absolutely no one did anything to stop it.
The story that has emerged, while well known to those close to the situation, bears repeating. Let’s break down this behemoth of a document.
The Atomic Green Rally
When things are up this much in a single day, the quote board starts to take on that atomic green color. Is this the beginning of the snap back rally we’ve been fearing?
Market Dynamics and CTA Performance May 2012 Update
Trading in futures markets that are non-correlated can help reduce risk and volatility. Unfortunately, when the markets move up or down in unison, achieving diversification is much more difficult, and that’s why we’ve started keeping an eye on two statistics that illustrate how easy or difficult it has been to stay diversified in the futures markets: the risk on/risk off trade, and the market correlations.
Disclaimers
Managed futures, commodity trading, forex trading, and other alternative investments are complex and carry a risk of substantial losses. As such, they are not suitable for all investors. You should not rely on any of the information as a substitute for the exercise of your own skill and judgment in making such a decision on the appropriateness of such investments.
The entries on this blog are intended to further subscribers understanding, education, and – at times – enjoyment of the world of alternative investments. Unless distinctly noted otherwise, the data and graphs included herein are intended to be mere examples and exhibits of the topic discussed, are for educational and illustrative purposes only, and do not represent trading in actual accounts. Opinions expressed are that of the author.
The mention of specific asset class performance (i.e. +3.2%, -4.6%) is based on the noted source index (i.e. Newedge CTA Index, S&P 500 Index, etc.), and investors should take care to understand that any 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.
The performance data for various Commodity Trading Advisor (“CTA”) and Commodity Pools are compiled from various sources, including Barclay Hedge, 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.
The mention of general asset class performance (i.e. managed futures did well, stocks were down, bonds were up) is based on RCM’s direct experience in those asset classes, estimates of performance of dozens of CTAs followed by RCM, and averaging of various indices designed to track said asset classes.
The mention of market based performance (i.e. Corn was up 5% today) reflects all available information as of the time and date of the publication.
The owner of this blog, RCM Alternatives, may receive various forms of compensation from certain investment managers highlighted and/or mentioned within the blog, including but not limited to retaining: a portion of trade commissions, a portion of the fees charged to investors by the investment managers, a portion of the fees for operating a fund for the investment managers via affiliate Attain Portfolio Advisors, or via direct payment for marketing services.
Managed Futures Disclaimer:
Past Performance is Not Necessarily Indicative of Future Results. The regulations of the CFTC require that prospective clients of a managed futures program (CTA) receive a disclosure document when they are solicited to enter into an agreement whereby the CTA will direct or guide the client’s commodity interest trading and that certain risk factors be highlighted. The disclosure document contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA.
See the full terms of use and risk disclaimer here.
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