Twenty Interest Rate Spikes (and Counting)
We’ve been waiting for a rise in interest rates for years… especially in the world of managed futures, which tend to do well during moves in interest rates. Unsurprisingly, we’ve been watching the recent moves very closely. That’s why a post on The Big Picture showing that, despite rates moving 20% recently, this move is barely a blip on the chart of the multi-decade bull run in bonds (rates lower), caught our attention. The piece include a nice table of such bond “spikes” back to January of 2008, including the magnitude and duration of such spikes. We love tables like that; it gives us a good opportunity to see how managed futures lined up during those same periods.
So how did they do? We re-created the chart and added columns for managed futures (Newedge CTA Index) and stocks (S&P 500).
Apple vs Hedge Funds
It’s not hard to see why Apple has captured the attention of the financial media as thoroughly as it has. We’ve all watched Apple go up, up and up over the past 5 years, and most investors out there have probably looked in the mirror at some point and thought, “What’s the point of all this research and hard work? Why bother doing due diligence and analyzing stats until I’m blue in the face when an investment in Apple would have trounced anything else I could have gotten my hands on, including Gold?”
Since becoming the largest publicly-traded company on Earth, ways of using Apple as a yardstick have flourished. This got us wondering… how would the Apple yardstick look when applied to the hedge fund industry?
IMFC Makes Volatility an Even Better Friend of Managed Futures?
The general assumption in managed futures is that volatility is a friend to performance, but as 2011 showed us, this won’t always be the case- especially if volatility is choppy and associated with dramatic risk on/risk off moves. In some ways, they’re more “frenemies” than anything else. Today on a regular ongoing due diligence call with one of our recommended managers, Roland Austrup of Integrated Managed Futures Corp (IMFC), who we’ve been working with since 2009, we learned that he has decided to abide by the whole “keep your friends close, and your enemies closer” routine, incorporating the trade of VIX futures into his trading strategy.
That’s Just About the Size of Things
Marketing materials often rely on generalizations about an asset class, but rarely do they provide investors with the kinds of solid information they need in order to make an informed decision. You shouldn’t make decisions based on what everyone else is doing; you should invest in a way that makes sense for your portfolio. We think that filtering information further makes it much more useful. Because we’re the helpful people we are, we decided to compile filtered information on managed futures for your investigative purposes.
The NFA Has Landed
To take part in the world of futures trading from a brokerage standpoint, registration is mandatory with the industry’s regulatory body, the National Futures Association (NFA). The next couple of weeks will be a testament to just this around the Attain offices, as the NFA is conducting their regular audit, which all members are subject to every three years or so. They’ll be poring over financial records, documentation, communications, promotional material and supporting evidence for days on end.
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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