A new white paper by Sunrise Capital Partners calls managed futures and hedge funds “A Match Made in Heaven.” Commodity funds are not what they used to be, according to a WSJ article, as such funds’ popularity may be pushing them toward correlation with the S&P 500. And CME Group prepares to launch its London-based FX futures exchange.
Observations – Statistics – Commentary
New Whitepaper: Managed Futures and Hedge Funds: A Match Made in Heaven
A newly released white paper featuring hedge funds, Revisiting Kat’s Managed Futures and Hedge Funds: A Match Made in Heaven (pdf), has been released by hedge fund risk management and research firm Sunrise Capital Partners LLC. The whitepaper points out that adding allocations of hedge funds to traditional portfolios of stocks & bonds “helps” – e.g. increases the return and reduces standard deviation of the overall portfolio. However, it also introduces a negative side effect – increased tail risk.
**The white paper can be found HERE. Ten years after the first Kat study, Rollinger looks at June 2001 to December 2011 and concludes that Kat’s study still holds, that managed futures and hedge funds combined, proved best for traditional portfolios.
Emerging Manager Forum Miami, December 13, 2012
In response to interest from Latin American and South American investors and traders CTAExpo LLC is holding its first conference in Miami on December 13, 2012, at the Eden Roc Renaissance. The focus of Emerging Manager Forum Miami is to help these Professional Capital Raisers, Investors, Asset Allocators and Traders meet their counterparts from the United States and Europe.
Rising Global Equities Lift Hedge Fund Performance; Barclay Hedge Fund Index Gains 1.79% in September
Hedge funds gained 1.79% in September, according to the Barclay Hedge Fund Index compiled by BarclayHedge. The Index is up 5.99% year to date. “In spite of news that highlighted continuing economic deterioration in the US, Europe, and China, investors remained in mild risk on mode,” says Sol Waksman, founder and president of BarclayHedge. http://jlne.ws/WpgtvQ
**DA: For more data, see the scorecard below.
|Managed Futures Scorecard||10/12/2012|
|Newedge Indices||MTD Return||YTD Return|
|Newedge CTA Index||-0.61%||-0.51%|
|Newedge CTA Trend Sub-Index||-1.42%||-1.44%|
|Newedge Trend Indicator||-1.32%||-14.73%|
|Newedge Short-Term Traders Index||-0.90%||-4.78%|
|Barclay Indices||MTD Return||YTD Return|
|Barclay CTA Index||0.51%|
|Barclay UCITS Index||6.36%|
|BTOP FX Index||-0.39%||1.62%|
|BTOP 50 Index||-0.66%||-0.83%|
|Morningstar Long/Short Com. Index||0.30%||-7.82%|
Commodities Funds Not What They Used To Be
Murray Coleman, Wall Street Journal
The use of commodities funds holding everything from oil to gold has become increasingly popular as a broad investment tool, even as more portfolio managers have started to question how effective this will be over time. Conventional wisdom maintains that holding large baskets of commodities can provide investors with a good hedge against inflation as well as low correlations to equities. But lately, funds investing across all types of such assets have been moving closer in-step with the S&P 500 index, notes Ned Davis Research strategist Neil Leeson.
**DA: A case I have been making for quite some time. As a non-correlated asset grows in popularity, it runs the risk of becoming a correlated asset.
CME Europe to debut with 30 forex products
By Philip Stafford, Financial Times
CME Group is planning to debut with 30 foreign exchange futures products when it launches its European bourse next year. The disclosure came as UK competition authorities launched a formal six-week public consultation to assess the Chicago-based group’s application for a local exchange licence.
Qatar Looking at Morgan Stanley Commodity Unit
Qatar’s sovereign wealth fund is “seriously looking” at a potential investment in the commodities trading unit of Morgan Stanley (MS), the country’s Prime Minister said on Monday. People familiar with the matter told the Wall Street Journal earlier this month that Morgan Stanley was is in talks to sell a piece of its commodities-trading business to a sovereign wealth fund from Qatar, a move that could help it avoid being hit by new proprietary trading rules while still retaining a piece of the lucrative business.
**DA: Thank you, Volcker Rule.
Managed Futures/Managed Funds
Fund firms cut back on new ETFs, closing more
Reuters, via Financial Post
Fund companies are growing more wary of introducing new exchange-traded funds, and more willing to kill those that have not caught on, as they grapple with a price war in an overcrowded $1.2 trillion market dominated by the three largest providers.
Investors cut back on hedge funds despite rally: data
Hedge fund clients pulled out more money than they put in over the past month in spite of a strong performance, in a possible sign of nerves that the parlous state of major economies could hit their returns.
**DA: Investors liquidating positions right after they made money? There should be a name for that. Let’s call it “profit-taking.”
Court allows hedge-fund titan Singer to keep seized Argentine naval vessel
New York Post
New York hedge-fund titan Paul Singer gets to keep the prized Argentine naval vessel seized last week as partial settlement of a $1.6 billion court judgment, according to a Ghana court. In handing the ship over to a unit of Singer’s Elliott Management fund, the court — which shocked the world when it ordered the ARA Libertad be detained — rejected Argentina’s claim that the military vessel is sovereign property immune to seizure.
**DA: Love this story, which we reported on in our last issue. Has sort of a 19th-century British naval empire feel to it.
3 Commodity ETFs Without Biases to Big Oil
ETF Database, via Yahoo! News
Even the most focused investors know that the best way to defend their portfolio against risk is to diversify their assets. This is even more true for commodity ETF investors, where too often funds claim to be “diversified” but still have upwards of 70% of their total assets allocated to a specific commodity. Investors who are looking for more balanced exposure should always take the time to take a close look at an ETF’s holdings to see just how “diversified” the fund really is.
Bullish Wagers Drop to Eight-Week Low: Commodities
Hedge funds cut bullish commodity wagers to the lowest since the middle of August before signs the U.S. economy is improving and declining grain stockpiles drove prices to a three-week high. Speculators reduced net-long positions across 18 U.S. futures and options by 0.4 percent to 1.24 million contracts in the week ended Oct. 9, the lowest since Aug. 14, U.S. Commodity Futures Trading Commission data show.
A Commodity ETF For All Seasons
Investors interested in the broad commodity market are faced with a wide range of choices. The two main differentiators between funds are the weighting of each commodity, and whether they implement a methodology that protects the fund from potential negative effects of rolling futures contracts. Understanding these differences is the key to picking the right fund for your investment needs, as funds with slightly different methodologies can have dramatically different returns.
**DA: Spotlight on GreenHaven Continuous Commodity Index ETF.
Pensions & Institutions
University Endowments Face a Hard Landing
New York Times
For years, America’s largest, richest and most prestigious universities have been the envy of investors. They churned out double-digit returns over the last two decades, even with steep losses during the financial crisis. Harvard’s endowment today is over $30 billion and has generated annualized returns of 12.5 percent over the last 20 years. http://jlne.ws/V1W8ZT
Prudential Reveals Almost Half of UK Business Owners Have No Pension Savings
Almost half (46 per cent) of UK business owners* – or 1.3 million** people – have no private pension savings to support them in retirement, according to new independent research from Prudential***.
Of those who have failed to make any private pension provision, more than half (54 per cent) said this was because they simply could not afford to set money aside. Nearly one in five (18 per cent) say they don’t have a pension because they will never retire, and 9 per cent claim they have sufficient funds in a company pension from previous employment.
CalPERS considers 85% rate hike for long-term care policies
CalPERS is preparing to impose a rate hike of up to 85 percent on most of its long-term care insurance policyholders. The rate hike would begin in 2015 and would be phased in over two years. It would affect three-fourths of the 150,000 CalPERS members who’ve bought long-term care policies, which pay for stays in nursing homes, convalescent homes and so on.
**DA: California prides itself on being a leading indicator on progressive issues. Is a sign of things to come nationwide?
Institutional Investors Rethink Traditional Asset Allocation Models
Bank Investment Consultant
More than one-third of the 632 investors polled (35%) said they believe that traditional investing approaches will not be effective in 10 years. Even for institutional investors who became more “tactical” or opportunistic in their investment decisions, the result has fallen short of their expectations. Almost one in three U.S. pension plans, or 29%, believe they will not achieve their return assumptions, up from 18% in 2008.
**DA: Those numbers sound really low.
What we can learn from institutional investors
Anyone who has followed the financial markets in the past five years has become familiar with four persistent themes: constant volatility in equity markets, low returns in fixed-income markets, high correlations between asset classes at times of stress, and uncertainty regarding global economic growth. Intervention by central banks and sovereigns has made navigating the investment universe even more difficult, because the “unknown unknowns” of the financial markets have become drivers of uncertainty and paralysis.
Dodd-Frank? Not Such a Drag After All
All From the perspective of hedge fund managers, the Dodd-Frank Act is, in so many ways, a huge drag. The law requires them to register with the Securities and Exchange Commission. To supply reams of sensitive data on trading positions. To screen potential investors more carefully. To hire compliance officer after compliance officer. How could all of this not eat into profits and hamstring competitiveness?
**DA: Survey says? Three fourths of respondents – private equity, venture capital, REITs and hedge funds, say “no big deal.”
SEC begins process toward compliance exams for newly registered managers
The SEC introduced a new “presence exam” campaign for private investment advisers, including hedge fund and private equity firms, that no longer are exempt from registering with the agency, thanks to changes enacted as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
Manager recommends industry qualification for hedge fund directors
An industry qualification or accreditation should be introduced for hedge fund directors so as to improve corporate governance standards in the alternatives space, it has been said.
China funds, brokerages embrace commodity futures as rules relax
Two Chinese fund houses have launched funds focused on the domestic commodities futures market as they look to tap into the burgeoning market that regulators have cautiously opened to local financial institutions this year.