MarketsWiki Education Series Videos, First Installment
Beginning today, John Lothian News is rolling out the videos from our recent summer intern education series. We begin with a talk from IIT professor Ben Van Vliet, who has written several books on high frequency trading systems and market structure. He has tremendous insight into what makes HFT firms tick, and how the organizational structure of these firms has migrated as the markets mature.
Please check out the 13 minute mini-lecture, and feel free to pass it along to anyone who may be interested.
Then scroll down for today’s top news from the world of managed futures.
Ben Van Vliet, IIT – HFT: The Need for More Than Speed
“Change is a proxy for opportunity in the financial markets.”
Technology has significantly changed the state of the financial industry. Several years ago, the financial industry was more about groups of individual traders – it thrived on whether or not those traders had a competitive edge in the markets. In today’s world, the financial industry centers around organizations creating better trading systems to gain a competitive edge.
It’s Now or Never: Register for CTA Expo Chicago
Registration is filling up fast for this year’s CTA Expo Chicago, September 23, 2014, at the UBS Tower Conference Center. This event sells out every year, and 2014 will be no exception. Not only will you mix and mingle with asset allocators, CTAs, vendors, and service providers, you will also hear great speakers like CME Group Chairman Emeritus Leo Melamed and our own Jim Kharouf.
SEC Launches Examination of Alternative Mutual Funds
BlackRock, AQR Capital Management Among Firms Contacted
Wall Street Journal
The Securities and Exchange Commission has launched a broad examination of alternative mutual funds, according to people familiar with the matter, kicking off regulatory scrutiny of one of the hottest and most controversial investment products to be offered to small investors.
***DA: This sector has grown so far so fast, in what can be called a sideways to down market, regulators are taking a deep look.
Managed Futures Endure a Tough July
Press Release – Newedge
All Newedge managed futures indices posted negative performance over the month
Newedge, a global leader in multi-asset brokerage and clearing, today announces the July performance data for its CTA performance indices.
All managed futures indices calculated by Newedge reported negative performance in July. Despite this the Newedge CTA Index still remains in positive territory for the year to date with a performance of +0.14% YTD, declining -0.91% during the month of July.
Trend followers had a difficult July, bringing the Newedge Trend Index down to -1.06%, increasing the negative performance of the year to -1.76%.
Performance attribution data from the market-based Newedge Trend Indicator shows that the positive performance achieved during the first part of July was offset by losses at the end of the month.
Bonds continued to provide positive returns, gaining +0.13% and bringing the year-to-date performance to +1.79%. In contrast, the positive trend seen in currencies during the month of June reversed in July with a decline of -2.37%, bringing the sector contribution down to -0.39% YTD.
What this wave of vendor M&A will bring
Hamish Purdey – Futures & Options World
A new wave of consolidation is washing its way through the futures vendor community. Hamish Purdey believes it’s not the wave that matters, but the ripples it leaves behind. The smart money is on the newly emerging vendor landscape of 2014 heralding some long overdue technological change in the industry.
How Individual Investors Can Invest Like a Hedge Fund
Rob Copeland and – WSJ
Everyone wants to be a hedge-fund manager these days, it seems. Or at least they want to invest like one. Now, individual investors have more opportunities to get in on the action.
***DA: Maybe everyone just wants to be paid two-and-twenty to underperform benchmarks.
Use of alternative investments rising among the affluent
The use of alternative investments — commodities, private equity, hedged funds, managed futures and other non-traditional vehicles — tends to rise in tandem with an individual’s wealth and income. Thus the vehicles are frequently a fixture in the portfolios of the affluent.
Sources: Jim Kelly, Jeff Gundlach meet with Bills trust, want to partner with bigger group
Buffalo Bills legend Jim Kelly still is trying to find his way into the team’s sale process. But the Hall of Fame quarterback has sidled up to a business partner in hopes of gaining entry. The Buffalo News has learned Kelly and bond investor Jeffrey Gundlach met with the Bills’ trust Thursday in the Detroit area, where Ralph Wilson Enterprises is located.
***DA: New car, caviar, four-star daydream. Think I’ll buy me a football team.
How Much Diversification Is Too Much?
Wall Street Journal
With all the investment options that advisers are pushing these days, you can easily get the impression that you are a slacker doomed to subpar performance unless your retirement portfolio is brimming with every asset imaginable. But do you really need to load up with every new product that comes along? Or can a straightforward mix of stocks and bonds get you to—and through—retirement just fine?
***DA: Ask me again in 30 years and I will tell you the answer.
Diversify with Liquid Alternative ETFs
Investors can now access multi-strategy alternative strategies once catered toward institutional investors through exchange traded funds to diminish market volatility and mitigate potential dips in traditional asset classes.
***DA: But not too much according to the WSJ.
Managed Futures/Managed Funds
Brevan Howard Cuts Risk After Losses, Returns to Roots
Laurence Fletcher – WSJ
Brevan Howard Asset Management LLP’s flagship $26.5 billion hedge fund has more than halved its risk levels this year and moved back toward interest rate trading, the specialty of its founders, during a testing 2014.
***DA: The period in the investment cycle known as wound-licking.
Bill Ackman plans to raise $4bn by listing new investment vehicle
Stephen Foley – Financial Times
Bill Ackman is planning to raise around $4 billion by listing a new investment vehicle in London, in the latest example of a hedge fund manager looking for capital that cannot flee in a crisis.
***DA: Exactly what I want – an investment I cannot redeem when I need to most.
‘Brutal’ sector rotation squeezes mutual funds
Chris Flood – Financial Times
Actively managed US mutual funds suffered one of their worst periods of performance in the past 10 years in March and April despite market volatility remaining low. The fear is that disappointing returns could force many active managers to adopt more risky strategies in the second half of 2014 in order to make up for the poor performance.
Once Flashy, Hedge Funds Now Seen as Staid but Consistent
ALEXANDRA STEVENSON – Dealbook – NY Times
Hedge funds once had the allure of being high octane and exotic. Today, they have a reputation of being mundane and consistent.
***DA: What was once a cigarette boat is now a pontoon.
As Clients Grow Older, So Does Desire for Liquid Alts
Let’s starts with population trends. More than 10,000 baby boomers turn 65 every day, and will continue to do so for the next two decades, according to the Social Security Administration’s 2012 Annual Peformance Plan. For these folks, the mindset has shifted from portfolio gains to investment income. Also, a more stable net asset value is preferred to ensure that the income stream is not affected by dramatic market events.
Finding Value in Alternative Asset Managers
This structurally attractive and generally misunderstood industry offers investors opportunities in a fairly valued market.
Pensions & Institutions
Welcome to the World of ‘Pension Smoothing’ – The CFO Report
Vipal Monga – WSJ
A government accounting maneuver to pay for road repairs, subways and buses will allow many U.S. businesses to delay billions of dollars in pension contributions for retirees.
***DA: We have been doing that in Illinois for quite some time and, let me tell you, it is anything but smooth.
Calpers could shift investments to avoid risky bets in areas like commodities -WSJ
The California Public Employee Retirement System, the largest U.S. public pension fund, is considering major changes to its portfolio as it attempts to stay away from riskier investments, including commodities, the Wall Street Journal reported on Sunday.
Ontario pension tsar’s harsh hedge fund lesson
Chris Newlands – Financial Times
When Ron Mock became president and chief executive of the Ontario Teachers’ Pension Plan in January – one of the world’s largest pension funds – his appointment raised more than a few eyebrows. Not just because Mr Mock, who is a 13-year veteran of the $140.8bn Canadian pension scheme, has a background in the somewhat controversial area of hedge funds, but because the hedge fund company he once presided over collapsed in 2000 with losses of more than $125m.
***DA: We all learn more from our failures than our successes, right?
Alternative investments to grab up to 40 percent of revenues by 2020: McKinsey
Sam Forgione – Reuters
Hedge funds, private equity funds and other alternative investments will command up to 40 percent of the asset management industry’s global revenues by 2020 as investors seek them for safety and consistent returns, consulting firm McKinsey & Co said on Wednesday.
Asset managers to trigger next crisis?
Philip Coggan, Buttonwood columnist at The Economist, says that asset managers could trigger the next crisis due to increasingly tight regulations.
Too much risk for most institutional investors
Chris Flood – Financial Times
Just 18 per cent of 101 institutional investors said their funds had stayed within their risk-tolerance limits over the past decade. One in six reported that at least half of the funds they had invested in exceeded their risk tolerances over the same period.
***DA: In this market there are two choices, excess risk and flat return.
Behind the strategy of the French pension reserve fund
Top 1000 Funds
The French pension reforms in 2010 had a profound impact on the asset allocation of the Fonds de reserve pour les Retraites, the €35.8 billion French pension reserves fund. Instead of making payouts between 2020 and 2040, after the reform, the FRR has to pay €2.1 billon to Caisse d’Amortissement de la Dette Sociale (CADES) each year between 2011 and 2024. Amanda White spoke to Salwa Boussoukaya-Nasr, chief investment officer, about the impact this has had on the investment strategy and allocations.
Fund groups review approaches to social media after FCA move
Julia Rampen – Investment week
Fund groups are to review their current policies regarding social media after the Financial Conduct Authority published guidelines on what groups can put on websites such as Twitter.
Buy-side told to brush up on best execution
John Bakie – The Trade
UK buy-side trading desks have been warned they need to undertake a thorough review of their best execution procedures in light of a Financial Conduct Authority (FCA) review published last week.
FIA And FIA PTG Comment On Modernizing CFTC’s Surveillance
FIA and the FIA Principal Traders Group sent a letter to the Commodity Futures Trading Commission yesterday, urging the CFTC to leverage existing resources as it works to develop a 21st-century surveillance system.
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