Observations – Statistics – Commentary

The JLN Managed Futures team is in Boca Raton, FL this week for the FIA International Futures Industry Conference. As expected, there were three key topics that consumed a majority of conversation, from panels to “table talk”:

  • The retirement of John Damgard after 30 years as president of the FIA. He has been a tireless promoter of the futures industry whose presence will be sorely missed. John turns the reins over to former CFTC chairman Walt Lukken, who brings his decades of industry and regulatory experience at this critical time for the futures industry.
  • The aftermath of the MF Global bankruptcy. There was a panel devoted to clearing member defaults and another on customer protections. It is clear that regulators, industry leaders and customer representatives all want the same things – for the customers be made whole and for protections be put in place so we do not see a repeat of this type of debacle.
  • The Dodd-Frank rules are becoming finalized, and the implementation time is fast approaching. Not everyone is ready.


Mark Esposito of OneChicago Discusses Their NoDivRisk (“1D”) Single Stock Futures
Mark Esposito, a 25-year trading veteran on the floor of the Chicago Board Options Exchange (CBOE), is the managing director, business development at OneChicago. John Lothian News Editor-at-Large Doug Ashburn spoke with Esposito about OneChicago’s NoDivRisk (“1D”) Single Stock Futures products and how commodity trading advisors and managed futures funds can use them.

Quote of the Day:

“Following the choppy markets in 2011, we have seen a noticeable shift in performance this year, pointing towards the trending market environment which is more suited to CTAs and managed futures players.”

-Pauline Modjeski, President of Horizon Cash Management

Lead Stories

MF Global Clients’ Details Published
Financial Times
Private clients of MF Global reacted angrily on Wednesday to what several said was a severe breach of privacy, after KPMG, administrator to the UK arm of the failed futures broker, published their identities, home addresses and the sums owed to them.

**DA: Another one for the “adding insult to injury” files.

Will MF Global haunt CME in 2012?
By Elizabeth Dexheimer, Medill Reports
It’s been four months since MF Global Holdings Ltd. filed for bankruptcy, but how long will the fallout continue to impact CME Group Inc.? It’s still too soon to tell, according to some industry experts.

Investment niche expands in agricultural commods
Prospects for profits tied to increasing food production are driving a proliferation of new niche investment vehicles focused on agriculture. Agricultural commodities exchange traded funds (ETF) are on the rise, with 11 new funds added last year alone.

Investing in Commodities with ETFs: A basic guide to investing in commodities using ETFs
As an individual investor, you may be interested in investing in commodities to diversify your portfolio. Investing in tangible assets such as oil, gold, silver, corn, and soybeans can offer diversification benefits. Commodities can also provide some protection from inflation. But how do you invest in this market?

**DA: Helpful guide from Morningstar to help those seeking passive investment in commodities. Scroll down to the regulatory section to see CFTC Commissioner Chilton’s desire to curtail such investment.

Asked and Answered: Commodities and Alternatives ETFs Minus the Tax Headache
Financial Planning
ETFs have seen rapid adoption by investors and advisors in recent years, but while the products themselves are known for their liquidity and transparency, what’s less understood is the tax bite some may deliver at the end of each year. With this in mind, Financial Planning spoke with Adam Patti, CEO of IndexIQ, to talk taxes and ETFs.

Managed Futures/Managed Funds

Highlighting 10 Successful Active ETFs Not Named TRXT
ETF Database
The debut of PIMCO’s highly-anticipated Total Return ETF (TRXT) earlier this month has been hailed as a pivotal moment for the active ETF industry, potentially opening up the floodgates to significant future inflows. There seems to be an opinion that the active ETF movement has been something of a failure to date, failing to bring in significant amounts of assets and gain much in the way of traction. The momentum has certainly been lacking for equities; the dozen or so actively managed stock ETFs have little to show in terms of AUM. But in other asset classes such as fixed income and alternatives, a number of active ETFs have taken off and accumulated in excess of $100 million.

**DA: Wisdom Tree Managed Futures Fund listed as number 6, with AUM of $246 million.

Hedge Funds Trim Bullish Commodity Bets
Hedge funds reduced bets on higher commodity prices for the first time in seven weeks after China cut its growth target, just as prices rallied on signs the U.S. economy is improving and Greece is containing its debt crisis. Money managers reduced combined bullish positions across 18 U.S. futures and options by 1.1 percent to 1.17 million contracts in the week ended March 6, Commodity Futures Trading Commission data show. Investors cut bets on copper by the most in two months and those on oil by the most since December. China uses more copper and energy than any other nation.

CFTC PRECIOUS METALS: Funds Grow Bearish On Precious Metals
Managed funds slashed their holdings of Comex gold and silver futures and options in the week ended March 6, according to data released Friday by the Commodity Futures Trading Commission. Money managers sold 48,118 long positions, or bets prices will rise, and added 3,437 short positions, or bets prices will fall. This is the first time in three weeks that traders in this category reduced their bullish bets on gold.

Man launches actively-managed global commodities fund
Man Group has launched its first single manager, commodities-only fund aimed at enabling investors to achieve greater diversity in their portfolios. The Man Commodities Fund has been developed by Man Systematic Strategies, an arm of the investment firm formed in January last year, and was launched with $50 million of seed assets.

Forward Launches Managed Futures Fund
Forward Management, LLC (“Forward”) today announced the launch of the Forward Managed Futures Strategy Fund (FUTRX), a mutual fund designed to generate positive returns in varied market environments while maintaining low correlations to major stock, bond, and commodity indexes. The Forward Managed Futures Strategy Fund harnesses a systematic, trend-following approach that provides both long and short exposure to liquid futures contracts in four global asset classes–commodities, equities, bonds and currencies.

**DA: Check out the risk disclosure at the end of the article. It is substantially longer than the press release.

Actively Managed Funds Have Time
By Lubos Pastor, Bloomberg
It has been another disappointing year for investors in actively managed funds. In 2011, about 79 percent of large-cap mutual fund managers trailed the Standard & Poor’s 500 Index (SPX), according to Morningstar Inc. The average equity mutual fund lost almost 3 percent last year, compared with a 2 percent gain for the S&P 500, says Lipper U.S. Fund Flows. Hedge funds fared even worse, with an average loss of 5 percent, according to Hedge Fund Research Inc.

**DA: This is a story from the equity world, but the study is applicable to managed futures as well. The opposite of Lake Wobegon: 80 percent of investors are below average.

Great Lakes Fund Solutions, Inc. is acquired and re-branded Marcal Systems Corporation
Great Lakes Fund Solutions, Inc. (GLFSI or the Company) today announces its new name and management following the sale of Marcal Systems Corporation to Mark Lancaster, the Company’s new President. http://jlne.ws/yMkaIP

Hedge Fund Study: Improved Environment for Managed Futures and CTAs
Two prominent CTA indices have published positive year-to-date returns for managed futures funds, highlighting a promising start to the year for this sector. The BarclayHedge CTA Index, a leading hedge fund benchmark of representative performance of commodity trading advisors is up 0.85% for 2012 and the Newedge CTA index, designed to track the largest CTAs and be representative of the managed futures space is up 0.93% for the same period.

Managed Futures Scorecard   2/28/2012
Newedge Indices MTD Return YTD Return
Newedge CTA Index 0.19% 1.65%
Newedge CTA Trend Sub-Index .85% 3.46%
Newedge Trend Indicator -2.99% -2.41%
Newedge Short-Term Traders Index -0.08% -1.28%
Barclay Indices MTD Return YTD Return
Barclay CTA Index   1.10%
Barclay UCITS Index   5.86%
Barclay Hedge Fund Index 2.36% 5.53%
BTOP FX Index   1.63%
Morningstar Long/Short Com. Index 1.43% 3.31%

Pensions & Institutions

Tale of Trouble at Japan Pension Funds
Wall Street Journal
A scandal involving the alleged disappearance of billions of dollars in pension-fund money is highlighting an uncomfortable truth here. Most of the pension plans set up by groups of small businesses in Japan are under water, the latest data from the health ministry shows, even as the burden of future payouts grows in step with the aging of the country’s population. Last month, Japanese financial regulators alleged that most of the roughly ¥200 billion ($2.4 billion) in funds overseen by AIJ Investment Advisors Co.—an asset manager that specialized in handling such small-business pensions—was missing. Regulators are still investigating.

Pension schemes grapple with alternatives
Financial News
The world’s seven biggest pensions markets – the UK ranks third – quadrupled their allocations to property, hedge funds and private equity in the decade between 2001 and last year. But almost all the action has been to do with defined benefit schemes, where a sponsor underwrites the pensions benefits.

Steven Greenhut: Would you trust this bunch with your pension?
Orange County Register
Proposed new pension system is a metaphor for how California is run – for the benefit of the government class, which occasionally throws a few crumbs to the rest of us when we get a little unruly.

Move to electronic trading will increase hedge fund use of futures
Hedge Funds Review
Increasing use of algorithms among US hedge funds and other buy-side institutions will spur more futures trading, according to research* by capital markets advisory and research company Tabb.Competition among buy-side firms will prompt institutions to refine their execution strategies to include automated trading tools, says the report, which looks at predictions for the market over the next 12 months.


US to pursue customer fund protection
By Hal Weitzman, Financial Times
The US Congress will propose legislation to strengthen the protection of customer funds in a bankruptcy of a futures broker, according to a Washington regulator. “There will definitely be statutory changes in regards to customer protection,” said Jill Sommers, a commissioner at the Commodity Futures Trading Commission, the US futures watchdog.

**DA One of the more interesting panels I attended yesterday. Change is coming, but nobody knows what, when, or how.

Hedge Fund Scammer Gets 11-Year Sentence
A New Jersey resident who ran a fake hedge fund was sentenced Friday to 11 years in prison. New Jersey U.S. Attorney Paul Fishman announced that Robert Sucarato, 42, of Holmdel, N.J., was also sentenced to three years supervised release and ordered to pay over $1.1 million in restitution by U.S. District Judge Renée Marie Bumb.

**DA: We don’t normally profile such fraudsters, but this one is quite a whopper – $7.2 billion in supposed AUM, net worth $798 million, faked documents from a Big 4 auditor, and lies about his education and professional credentials. Reminds me of Tommy Flanagan, John Lovitz’ pathological liar character from ’80s SNL.”I run a hedge fund, and I’ve got…7 billion dollars in it. And I have a Ph.D. in astrophysics. Yeah, that’s the ticket.”

“Please Listen Carefully, Some Menu Options Have Changed”
Speech of Commissioner Bart Chilton, Trade Tech 2012, New York, NY March 8, 2012

**DA: Commissioner Chilton complains about “Massive Passives” – commodity investors, hedge funds, managed funds, pensions, etc. Blames passive investment for high commodity prices.

Goldman Sachs to Pay $7 Million Over CFTC Trading-Account Claims
Goldman Sachs Group Inc. (GS) agreed to pay $7 million to resolve regulatory claims it failed to properly supervise commodities trading accounts, the U.S. Commodity Futures Trading Commission said. The regulator accused the New York-based firm’s Goldman Sachs Execution & Clearing LP unit of failing to supervise subaccounts managed from 2007 to 2009 by a broker-dealer that had engaged in “questionable conduct,” the CFTC said in a statement today. Goldman Sachs agreed to disgorge $1.5 million in fees and commissions it had collected from the broker and pay a $5.5 million civil penalty, the agency said.

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