It is mid-January, and the “winter blues” have set in. Temperatures have dipped well below freezing, friends and colleagues have succumbed to the nasty flu making the rounds and, worst of all, 2012 performance numbers have come in for the alternative investment sector. To put it mildly, we’ve had better years. But, as always, there are bright spots. Assets continue to grow. Emerging managers and new products are still attracting new interest. Besides, periods of underperformance are part of the non-correlation formula. It is a marathon, not a sprint.
Quote of the Day
“Unfortunately, it was a bad year, with many of the programs we track- including industry giant Winton- struggling in 2012. If Winton’s David Harding and his 120 PhD’s on staff can’t post profits, you know it is not a good year from trend following.”
– Attain Capital Management, in a study published January 8, 2013, Managed Futures 2012 Performance: Strategy Breakdown
Observations – Statistics – Commentary
Next Up for CTA Expo: New York
Registration is now open for the fourth CTA Expo New York, April 25, 2013 at the CME Group Building (NYMEX Building). CTA Expo New York is a one day conference consisting of speakers and panels combined with a concurrent schedule of thirty minute presentations by individual traders and funds and industry workshops.
**DA: For conference demographic information, Frank and Bucky have put together an information packet.
The Altegris CTA Challenge is Off and Running
The starting gun has been fired in Altegris’ inaugural CTA Challenge. 27 CTAs, from emerging $100k programs to managed futures heavyweights with $10 million minimums are squaring off in this year-long competition which will allow market participants to compare risk-adjusted returns and performance-based analysis.
**DA: “Evaluating performance is more than just a positive rate of return.”
Managed Futures 2012 Performance: Strategy Breakdown
Attain Capital Management
As the curtain opens on a new year, investors usually can’t help evaluating their performance on the year gone by, asking the same questions they always ask around this time. Could I have done better? Could I have done worse? Does my portfolio need adjusting? These questions are tricky to handle, after managed futures posted yet another lackluster year overall, with the Newedge CTA Index down -2.95% (Disclaimer: Past performance is not necessarily indicative of future results).
What’s Hot…And What’s Not
But after a boom in products and, before last year, assets, the group has struggled with performance. The average fund returned a negative 7.4% for 2012, according to Morningstar, and is down an average 3.9% a year over the past three years. Net inflows in 2012 through Nov. 30 totaled $912.6 million, a far cry from the $4.37 billion in 2011.
**JK – WSJ says Managed Futures Mutual Funds, decidedly not hot in 2012.
CTAs stay true to the trend
William Mitting – FOW
Last year was a tough one for CTAs as markets were over-correlated and moved more by government intervention and “risk-on, risk-off” plays than fundamentals. The sector ended the year down, the first two consecutive years of draw-downs in its history. However, many funds are sticking to their strategies and riding out the storm.
**DA: Riding the storm out; waiting for the thaw out.
Momentum Strategies in Futures Markets and Trend-following Funds
Social Science Research Network
In this new paper, two professors, Akindynos-Nikolaos Baltas of Imperial College Business School and Robert Kosowski of Oxford University examine the question of capacity constraints in trend-following investing. The researchers find no evidence of statistically significant capacity constraints based on two different methodologies and several robustness tests.
**DA: Managed futures will not become “oversold” any time soon.
Getting Long on Short-Dated New Crop Grain Options
Futures and options contracts offer a straightforward proposition for commercial grain traders: If they allow you to do what you already do faster, cheaper and better, then use them. So it is with CME Group’s recently-launched suite of Short-Dated New Crop corn, soybean and wheat options, according to Howard Simons, a CME Group contributor and a former trader. If early trading in 2013 is any indication, these contracts will take their place alongside long-standing conventional grain options eventually.
In Investing, No Need for Sudden Death
New York Times
“AMERICA loves a winner,” Gen. George S. Patton Jr. told the troops in 1944, and he was surely right. The general also declared, “America will not tolerate a loser.” He was wrong on that one, but how could he have known about the Mets?
Let’s ‘Clean Sheet’ Our Failed Approach To Entitlements
I often say that most problems today, around the world, are conservative problems: getting government spending into line, reforming tax systems, implementing a Stable Money framework, reforming entitlement programs so that they do more but cost less, cutting needless government headcount, reviewing regulatory frameworks that have become bloated from a constant addition of new measures, and so forth.
**DA: As always, the devil will be in the details.
Alternative Investments: Which are Most Popular with Millionaire Investors
The Spectrem Group
Twenty percent of Millionaires claim collectibles as the most popular type of alternative investment, according to a new wealth level study conducted in the fourth quarter by Millionaire Corner. Collectibles are second only to Real estate investment trusts (REITs), which are most valued as alternative investments by one-fourth of respondents with a net worth between $1 million and $4.9 million (not including primary residence). Rounding out the top five most popular alternative investments are precious metals (18 percent) and 529 college savings plans (15 percent).
**DA: Grey Poupon did not make the list?
Managed Futures/Managed Funds
2012: Total Hedge Fund Assets Grew To $1.78 trillion
The Eurekahedge Hedge Fund Index was up 1% in December, bringing the yearly number to 5.63%. The MSCI World Index1 returned 2.28% in December and was up 13.75% for year 2012.
Hedge funds started the year on a strong positive note, gaining 4.16% in the first two months before posting losses for 4 consecutive months. Performance rebounded in the second half of the year, with hedge funds gaining 3.92%, as global markets rallied amid positive announcements by governments around the world.
Hedge funds say good riddance to 2012
What does it take for a hedge fund to beat the overall stock market? Harpooning JPMorgan’s London Whale ? Nope. Despite sniffing out and profiting from JPMorgan’s bet on an obscure credit derivative index, Boaz Weinstein’s Saba Capital appears to have lost money for investors in 2012.
**DA: The question is whether investors will be saying good riddance to hedge funds.
Hedge Funds: The Most Expensive Bargain In Town
Ted Seides, CFA – Seeking Alpha
Fact: Hedge fund fees are high.
Indeed, hedge fund fees are unquestionably the highest amongst active managers of marketable securities. http://jlne.ws/TYnDqE
Hedge Funds Up 7.32% As Emerging Markets Soar
Hedge funds returned 7.32% last year, according to eVestment. The company’s Hedge Fund Aggregate rose 1.47% last month as 71% of the funds it tracks turned in a positive December.
For the year, 68% of the index’s constituents were up, but few managed to top the broader markets in a year that saw the Standard & Poor’s 500 Index rise 16%.
Don’t turn your back on the 60/40 portfolio
Despite the rise of alternative asset classes, the traditional mix of 60% stocks and 40% bonds is still the best asset allocation for the majority of investors, said Fran Kinniry, a principal in Vanguard’s Investment Strategy Group.
**DA: Wow. He says that, over the last 20 years, nothing has been a better hedge against the downside in equities than investment grade bonds. Fine. What about the next 20 years? Fixed income yields have been a one-way train for 30 years. Read on for a rebuttal:
Generic Portfolio Allocations
In the middle of the last decade, the investing world came to learn much more about so-called endowment investing due primarily to the successful results put up by Harvard and Yale over the course of many years. Beyond equities and fixed income, the endowments invest in private equity, timberland in New Zealand and other exotic holdings that retail investors can’t really access. This led to investment products that were marketed such that they were selling the ability to create your own endowment portfolio; things like BDCs and Private Equity ETFs.
Clive Hedge Fund Assets Said to Fall by 46% After Loss
Clive Capital LLP’s assets plunged 46 percent in 2012 after the commodity hedge fund lost money for a second year running and investors withdrew their cash, said two people with knowledge of the matter.
Clive ended the year managing $1.95 billion, down from $3.6 billion at the end of 2011, said the people, who declined to be identified because the London-based hedge fund is private.
**DA: Clive was started in 2008 by former Moore Cap trader Chris Levett.
Pensions & Institutions
Florida Reaches Torrid $6 Billion Commitment Pace
The pace of new private equity and alternative investments at the Florida State Board of Administration is likely to reach about $6 billion in fiscal 2012-2013, as Florida’s primary $126 billion pension fund gradually ramps up its allocations to so-called strategic investments from zero to 11 percent of the portfolio, according to John Kuczwanski, an SBA spokesman who spoke with Buyouts, peHUB’s sister magazine.
New body to push Chinese foreign investment
Beijing’s State Administration of Foreign Exchange has established a new wealth fund from its $US3.2 trillion in foreign reserves, engineered to aid Chinese companies to invest overseas, Fairfax reports. According to the media outlet, the establishment of investment body SAFE Co-Financing – designed to seek out alternative investments for China – will likely result in billions of dollars flowing into Australia.
ParkRiver And MIK Join Together For Form CPO-PQR And CTA-PR Fix
ParkRiver Fund Solutions and MIK Fund Solutions today jointly announce that they have combined resources to provide fund firms with a comprehensive solution to the new regulatory requirements of Forms CPO-PQR and CTA-PR, complementing their existing Form PF solution.
**DA: For more on Form PF, visit our MarketsReformWiki page.
Demystifying Futures Industry Regulation: 7 Questions Answered
Market participants’ responses to a list of rules changes recently proposed by the CFTC indicate the uncertainty over futures industry regulation. A closer examination of industry comments reveals logical solutions with complex implications.