Looking Up: RJO’s Gerry Corcoran Bullish On Managed Futures
Jim Kharouf – JLN
As CEO of one of the largest FCMs in the world, Gerry Corcoran of RJ O’Brien has diversified its services from futures execution and a clearing member firm to a host of other markets and businesses including managed futures.
To him, the managed futures space has a lot of room to grow. JLN editor-in-chief Jim Kharouf sat down with Corcoran last week at the FIA Boca Conference to talk a bit about his views of the managed futures space.
Q: What do you see in the managed futures space?
A: I’ve personally been invested in managed futures for more than 20 years. I believe in managed futures. I think it’s an important part of my portfolio. I think it plays a role in any type of high net worth, or institutional portfolio.
We looked at it and decided it was one of the new products, for us, that we wanted to invest in. When AlphaMetrix exited, we felt there was a need to serve a certain segment and we’ve been working hard on it. We have a platform business with 10 really good CTAs on it. So we’ve developed the sell side of the business. Now we need to get the buy side of the business on the platform. It’s a natural vertical to us, in the sense that we can be great at identifying CTAs, getting the right buyside platform. Most of that business can be executed and cleared through RJ O’Brien. So we capture a fee-based revenue there.
Return Dispersion,Counterintuitive Correlation: The Role of Diversification in CTA Portfolios
Kathryn Kaminski, Ph.D., CAIA, for Campbell & Co.
It has been well documented that 2014 brought a resurgence of managed futures strategies, or CTAs, which performed very well as a whole, outperforming all other hedge fund strategies. However, a closer look reveals that there was a wide range of performance, or return dispersion, across managers. The bottom line? Not all CTAs are created equal, emphasizing the importance of investing in multiple CTAs in order to achieve a greater level of diversification in a managed futures portfolio. New research by Campbell & Company, Return Dispersion and Counterintuitive Correlation, examines this return dispersion and how idiosyncratic risks have the potential to be reduced by diversification.
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Volatility Vaults Short-Term Trader Niederhoffer To Top
Mark Melin, ValueWalk
Both mean reversion and short term trend following find a home as the ending of Federal Reserve quantitative easing drives trend in volatility
**JK: Roy Niederhoffer back on top of the charts. But for how long?
Short Term Traders lead CTA returns in February
Societe Generale Prime Services has announced the February performance data for its Newedge CTA performance indices. The Newedge Short-Term Traders Index led CTA performance in February, posting returns of +0.14% – the seventh consecutive month of positive returns. The index is now up 3.31% for the year-to-date.
**JK: Lucky number seven!
Funds: What’s hot, what’s not
February’s top-performing fund categories have turned sour in March as the market continues to weigh earnings, Europe and interest rates. Funds that use futures and options to goose returns in commodities soared 9.8% in February, but those funds change direction faster than a weather vane in a tornado. From the end of February through March 9, leveraged commodity funds lost 8.3%, according to Morningstar, the Chicago fund trackers.
Why 2014 was another ‘banner year’ for trend-following funds
After five years languishing at the bottom of performance tables, the trend-following fund MAN AHL Diversity managed to produce a stellar return last year, as asset classes diverged.
***DA: All one needs is a trend to follow.
**JK: All you need are trends, trends. Trends are all ya need…
Pension funds seek riskier, illiquid bets to make returns they need
British pension funds are coping with low bond yields and high share prices by seeking riskier investments, in a hunt for the returns they need to meet their obligations to pensioners. Collectively managing at least 2.5 trillion pounds ($3.69 trillion), pension funds are reeling from six years of money-printing by central banks globally, which has depressed yields so much that some bonds even cost investors money to hold them.
***DA: I see no problems here whatsoever.
Hedge Funds Recorded Strong Recovery in 2014
By ANITA RAGHAVAN, NY Times
The number of hedge funds hit new heights last year, and the amount of money flowing into the funds was the highest since before the financial crisis. Even so, hedge funds’ performance lagged the broader stock market.
The Almighty Dollar
On March 2, 2015, the U.S. Dollar Index–a trade-weighted index of the U.S. dollar versus six major currencies–reached its highest level since 2004. In the year to date, the index has gained 5.33%, on the back of a 12.25% gain in 2014. The dollar’s rise has been quick and steep, negatively affecting the returns of most international-equity, local-currency bond, and multicurrency funds in 2014. For the year, the Morningstar foreign large-blend category fell 4.98%, and the multicurrency category lost 1.64%–much of that weakness caused by currency exposure.
***DA: Speaking of trends to follow.
Managed Futures/Managed Funds
How Many Mutual Funds Routinely Rout the Market? Zero
By JEFF SOMMER, NTY Times
The bull market in stocks turned six last Monday, and despite some rocky stretches — like last week, when the market fell — it has generally been a very pleasant time for money managers, who have often posted good numbers
U.S. mutual funds cut expenses by shifting billions to trusts
By Tim McLaughlin, Reuters
Mutual fund companies, including No. 2 Fidelity Investments, have slashed fees on their most popular funds by shifting billions of dollars into collective trusts not regulated by the U.S. Securities and Exchange Commission.
Bridgewater Algorithims To Be Developed “Bridgewater Way”
Mark Melin, ValueWalk
New algorithmic investment division will not use computers to automatically execute trades, rather it learns from human Bridgewater strategists to blaze a new trail
Activists lead hedge fund bounce-back in February
Hedge funds that bet on managed futures—contracts on the future price of securities such as stocks, currencies and commodities—posted some of the lowest returns for the month, an average gain of just 0.12 percent when virtually all strategies made money. Such so-called systematic funds remain the strongest performing strategy of 2015 at 2.83 percent, following on their top-ranked 6.83 percent average gain in 2014.
Alternative UCITS Booming, AUM Up 30% In 2014
The Alternative UCITS universe consists of 1,212 funds with around EUR 305.3 billion of assets under management as of Dec. 31, 2014. Last year, AUM in this arena increased by EUR 69.1 billion, or nearly 30%. LuxHedge’s research indicates that this growth is set to continue strongly. The table below provides a breakdown by AU strategy in terms of number of funds, AUM and number of funds in different tranches of AUM.
Pensions & Institutions
Why Hedge Funds Still Make Sense for Pension Funds
By CHRISTOPHER SWANN, NY Times
Life for pension funds is getting tough. The race to the bottom in global interest rates has reduced the rate at which funds discount their future liabilities. Life expectancy continues to surge. Deficits have ballooned.
***DA: Still some punch left in that bowl. Please don’t take it away.
Hedge funds are too expensive says UK rail pension fund manager
Britain’s railway pension scheme fund manager has moved to managing more of the assets itself, switching to “smart beta” strategies as hedge funds and other alternative investments often prove too expensive, its chief executive said on Friday.
Alternatives make push for retirement accounts
Alternative fund managers are getting a boost from a movement among retirement-plan advisers to use more open-architecture and custom target-date funds, according to interviews with managers and advisers who work in the space.
Institutional investors eye global macro as top hedge fund strategy in 2015 – survey
Pensions & Investments
The 378 institutional investors representing $1.13 trillion of hedge fund investments predicted total global hedge fund industry AUM will increase by 14.4% in 2015, an increase from the 2014 forecast by survey respondents of 12%.
***DA: Managed futures/CTA was a close third.
Pension Funds to Dominate HF Capital by 2020
Chief Investment Officer
Pension funds are likely to dominate the hedge fund industry’s assets in the next five years and are gaining more control over fee arrangements, according to a report. The survey—conducted jointly by consulting firm KPMG, the Alternative Investment Management Association (AIMA), and the Managed Futures Association (MFA)—studied more than 100 hedge fund managers representing $440 billion, and found the sector was on the cusp of major dynamic changes.
State’s pensions stung by oil plunge
Indianapolis Business Journal
The drop in oil prices since July left more money in consumer bank accounts, but it was costly to Indiana’s pension funds. The Indiana Public Retirement System has 6.8 percent of its $24 billion defined-benefit portfolio invested in commodities, a stake that fell 33 percent in the fiscal year to date, INPRS reported to its board of trustees this month.
***DA: Wonder how many more stories like this are lurking.
Dodd-Frank reforms face new assault
Barney Jopson in Washington, FT
The Obama administration is braced for a fresh assault on reforms implemented in the wake of the financial crisis as lawmakers ratchet up a search for changes acceptable to banks and politicians of both parties.
***DA: Not looking for a repeal, just a 2100 page “tweak.”
CFTC enforcement chief to revive use of in-house courts
The U.S. derivatives regulator’s enforcement director said on Thursday that his division planned to revive the use of in-house administrative courts, after more than a decade of bringing contested cases only to federal courts.
***DA: No one outside the industry understands what they are talking about anyway; might as well keep it in house.
Listed derivatives face MiFID II clearing threat
As much as half of the exchange traded derivatives market is under threat from proposed regulation that would prevent clients from accessing futures and options trades without a direct clearing broker relationship.
Prepare for New Money-Fund Rules; Three issues for investors to consider as regulations lead to a shake-up in the funds
By KIRSTEN GRIND, WSJ
Money-market mutual funds used to be boring: a little-thought-about place to park your cash.
Why RIA Advocates Still Fear FINRA Oversight
by Kenneth Corbin, Financial Planning
Even after repeated assurances from FINRA that it is no longer actively pursuing regulatory authority over investment advisors, some advisor advocates aren’t buying it.