A managed futures pioneer announced he will cease client asset management at the end of the year. A Morningstar article says that now is NOT the time to bail on managed futures. CTAs looking for a challenge should take a look at a new competition sponsored by Altegris Clearing Solutions.  Up first, however, is the launch of a new video series at John Lothian News: Restoring Customer Confidence.

Observations – Statistics – Commentary

Quote of the Day: “What do you say, it is like a funeral. He was one of the pioneers and he was one of the innovators, he helped make MFA a vibrant organization and helped a lot of guys get started in the business.”

-CTA Expo co-founder Bucky Isaacson on the recent announcement that managed futures pioneer John W. Henry would stop managing client assets at the end of 2012.

 

Restoring Customer Confidence More ideas»
Regulatory Changes: A Pretty Picture For Gross Margining

Regulatory Changes: A Pretty Picture For Gross Margining
MarketsWiki.tv

The Dodd-Frank Act has addressed numerous risks in the financial markets. Ron Filler, a Professor at New York Law School, says one provision, called gross margining, could alleviate segregated customer account risk, starting in January 2013.

Watch the video »

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About the Restoring Customer Confidence video series
In the aftermath of the MF Global collapse, fraud at Peregrine Financial Group and high profile high-frequency trading shocks, John Lothian News asks – how do you restore customer confidence and bring traders back?

The Restoring Customer Confidence video series answers that question by exploring potential solutions using expert interviews and simple animations.

John Lothian News interviewed more than a dozen professionals in the industry to get their ideas and solutions. As these ideas become practice, or as new concepts are adopted by the industry, we will continue to add them to the site.

Visit the video series page on MarketsWiki.tv over the next several weeks for new ideas and solutions.

Emerging Manager Forum Miami – December 13, 2012
CTA Expo
December 13 is fast approaching; time to register for the first ever Emerging Manager Forum Miami. Currently, they have 175 registered attendees, which includes over 90 registered as Capital Sources, over 30 whom have never attended a CTA Expo conference.
http://jlne.ws/Tn90sE
**DA: Panelists include our own Jim Kharouf, who will speak on the use of new media in the CTA space.

Announcing the 2013 Altegris CTA Challenge
Altegris Clearing Solutions has announced the launch of its inaugural Altegris CTA Challenge, a competition for professional managed futures managers. Registration will be open until December 10, 2012.  The Challenge is open to all qualified CTAs and is seeking entries from both undiscovered talent and established managers.  The winner will be announced in early 2014 and will be selected based on both quantitative and qualitative scoring.
http://jlne.ws/WvBOqi
**DA: For more information on Altegris Clearing Solutions, watch the JLN Managed Futures interview with Altegris’ Max Eagye from earlier in 2012:
http://jlne.ws/wtHElV

 

Managed Futures Scorecard   11/13/2012
     
Newedge Indices MTD Return YTD Return
Newedge CTA Index 0.36% -2.61%
Newedge CTA Trend Sub-Index -0.13% -5.00%
Newedge Trend Indicator -3.28% -19.16%
Newedge Short-Term Traders Index 1.37% -3.85%
     
Barclay Indices MTD Return YTD Return
Barclay CTA Index   -1.27%
Barclay UCITS Index   6.54%
BTOP FX Index 1.09% 1.51%
BTOP 50 Index 0.16% -2.38%
Morningstar Long/Short Com. Index -0.59% -10.64%

Lead Stories

John Henry to close CTA shop
by Daniel P. Collins, Futures Magazine
John W. Henry, one of the founding fathers of managed futures and the systematic trend following approach to trading futures, will stop managing customer funds at the end of this year according to a message sent from his firm’s,  John W. Henry & Company Inc., Boca Raton office.
http://jlne.ws/St9uNS
**DA: Star trader, kingmaker, and the man who brought the World Series trophy to Boston. A real Renaissance Man.

Exit Manged Futures? Not Now.
Morningstar
Managed futures have significantly under performed broad markets over the past few years. When an asset class disappoints, selling it is always tempting. But they are still worthwhile. If anything, this might be an appropriate time to direct more funds into them
http://jlne.ws/T4VQ7C
**DA: Managed futures could be the airbag that saves your portfolio if the markets crash. That was Morningstar’s bad metaphor, not mine.

Modern Portfolio Theory is not dead yet
by David Kaufman, Financial Post
Most financial analysts and advisors across the world have used the same approach to constructing portfolios for the past 50 years. Referred to as Modern Portfolio Theory or MPT, the theory was pioneered in 1952 by Harry Markowitz, who later received a Nobel Prize in Economics for his work. Although there is a lot of math in MPT, the model is based on these basic assumptions: Investors are rational, markets are efficient, correlations among different asset classes are more or less constant over time, and financial assets’ returns are normally distributed over time.
http://jlne.ws/QgtOqC
**DA: Hands up: How many of you just quoted a line from Monty Python and the Holy Grail?

Hedge funds house of the year
Risk.net
Credit Suisse has expanded its share of a structured funds market in Europe that has been as damaged as any other by the financial crisis. A firm commitment, in terms of people, financing and innovative ideas has ensured that the Swiss bank has maintained its leading status.
http://jlne.ws/T4YNoR
**DA: I thought this year’s hedge fund house of the year was made with a deck of playing cards.

Managed Futures/Managed Funds

Volatility is key driver in managed futures funds
Opalesque
CTAs are defined by their volatility and speakers at the Opalesque Managed Futures Roundtable, sponsored by Efficient Capital Management, and Eurex, discussed how they cope with the phenomenon.
http://jlne.ws/QgrMa7

Investment Moves to Make Right Now
Fox Business
The genius of investing is recognizing the direction of trends, but the uncertainty of the U.S. presidential election made it difficult to do that. Regardless of whether you wanted President Obama in office another four years, you should take comfort in the clarity his re-election provides for your portfolio.
http://jlne.ws/T4YzOz
**DA: Article recommends managed futures. But he also suggested diamonds, metals, utility stocks, and a basket of U.S. equities. But stay away from Europe and emerging markets because of the “coming worldwide slowdown.” Huh?

For Passive Investors, Rolling Commodities Gather a Loss
Wall Street Journal
Even when commodities win, investors can still lose. Despite fundamental market pressures and a volatile year, prices for front-month natural gas futures have gained a healthy 24% so far in 2012. But if you bought units in the United States Natural Gas Fund at the start of the year, you would instead have lost one-fifth of your investment.
http://jlne.ws/ZBWnQC
**DA: Nothing new here. Contango term structure = negative roll yield.

3 Commodity ETFs Flying Under Your Radar
Seeking Alpha
It used to be that commodity investing was left for active traders who were savvy enough to navigate the complex futures world. But the introduction of commodity ETFs changed all that, as it was suddenly possible for retail investors to gain exposure to hard assets of all kinds with a single ticker. As the industry began to grow, investors quickly flocked to their favorites and left other funds out in the dust. In the spirit of “bigger is not always better,” we outlined three solid commodity ETFs whose size may have caused them to go unnoticed by many investors.
http://jlne.ws/StrsQl

Consider Managed Futures Investing in a Fashion Similar to Growth Stock Investing
Opalesque
In a proprietary study released in Opalesque Futures Intelligence, one of largest managed futures fund managers in Europe and Asia reveals insight: investing in a managed futures CTA as one might consider growth equity investing strategy. This touches on the third rail issue of emerging manager selection and evaluation, always a lively topic inside the industry when one looks to mitigate survivorship bias when drawing conclusions. The founder of Sweden’s Risk and Portfolio Management takes the conversation in a new direction.
http://jlne.ws/XJwHSG

Pensions & Institutions

Institutional investors active in CTA funds have more than doubled since 2008
HedgeWeek
There are now 713 global institutional investors with an active CTA portfolio, a significant increase on 2011 when the number stood at 504, and 2008 when just 331 had CTA funds in their holdings.
http://jlne.ws/ZRGaGi
**DA: Spikes tend to follow big years. What will happen next year? CTAs didn’t really knock it out of the park this year.

Pension funds show growing interest in managed futures
Investment & Pensions in Europe
The number of institutional investors active in the managed futures (CTAs) market has been increasing in recent years, with 713 respondents to a Preqin survey having active CTA portfolios compared with 504 in 2008.
http://jlne.ws/RFla1V
**DA: Not just a U.S. phenomenon.

Service providers push to deliver greater transparency
HedgeWeek
Despite the operational challenges that face managers who decide to take on managed accounts, it seems almost inevitable that as more institutional money comes into the alternatives space, managed account AUM will continue to climb. This is because capital raising, for all but the biggest and best managers, remains an almost Sisyphus-like endeavour.
http://jlne.ws/SYlDvl

Regulation

MF Global a year on: reports, investigations and a nervous agricultural sector
Delta Farm Press
It has been just over a year since the collapse of commodities brokerage MF Global and the disappearance of some $1.2 billion — much of it invested by the U.S. agriculture sector — in illegally-accessed, and supposedly segregated, customer funds. Despite numerous investigations and hearings on Capitol Hill, disgraced MF Global head Jon Corzine and other executives of the brokerage have thus far escaped prosecution.
http://jlne.ws/StrMyK
**DA: The Congressional report appears to have been no help. Read on:

Corzine blundered at MF Global, but how?
MarketWatch
More than a year after MF Global Holdings Ltd.went bankrupt, investors and the public still want to know why the company used customer money to pay its debts and how more than $2 billion in customer funds remains mostly unaccounted for. A report issued Wednesday by the House Financial Services Committee doesn’t answer those questions.
jlne.ws/SXCHRS

Industry secures AIFMD changes in UK and Germany
Paul Hodkinson – Financial News
The private equity industry has scored two key victories on how the European Union’s Alternative Investment Fund Managers Directive will be implemented in the UK and Germany.
jlne.ws/SXCKNP

New body must help U.S. markets prepare for storms – CFTC’s Chilton
Fox Business  
A top U.S. regulator called for the creation of a new body that could prevent a repeat of the confusion that reigned in capital markets when Superstorm Sandy caused widespread damage to New York and New Jersey. http://jlne.ws/U2ao87
**DA: Let’s not. The last thing we need right now is another commission. We already have too many. And, really, what was the big deal? The markets closed, then reopened, then people started trading again. I was in NY this week, and I saw quite a few things more worthy of funding in the aftermath of the storm than another government agency.

Position limits appeal, new rule on the way
International Financing Review
The Commodity Futures Trading Commission is set to file an appeal following a District Court ruling against the agency’s attempt to impose position limits on commodity derivative markets, despite earlier speculation that it might not be the best avenue for the agency to pursue.
http://jlne.ws/QJARbe

U.S. House panel suggests SEC-CFTC merger after MF Global
Reuters
A U.S. congressional panel suggested on Thursday that the Securities and Exchange Commission and Commodity Futures Trading Commission merge, saying their failure to share information contributed to the collapse of futures brokerage MF Global.
http://jlne.ws/SYsULs
**DA: Stop me if you’ve heard this one before.

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