Archive for the ‘Hedge Fund Research’ Category
Friday, July 19th, 2013
Here are the latest posts from Attain’s Managed Futures Blog…
Managed Futures, Matt Damon, and the Extra Mortgage Payment
Managed Futures, in Esquire MagazineâŠ We checked out the window to see if pigs were flying, but itâs real. Esquire rolled out their August 2013 edition, with a âYour Financial Milestonesâ article, and put Managed Futures right up alongside such sound financial advice as âErase Credit Card Debtâ and âMake an Extra Mortgage Payment each Yearâ. Weâre smiling just knowing that managed futures is in a magazine with Matt Damon on the cover! Continue Reading…
Hedge Fund Advertising — Managed Futures Style
It’s been one week since the SEC made an unprecedented decision to strip the multi-decade old ban on general solicitation by hedge funds, and the potential implications are endless. While we often stand up and tell anyone who will listen that managed futures are not hedge fundsâŠ in this case â the privately offered funds of managed futures programs are surely part of ”hedge fund advertising’. So what does this landmark ruling by the Securities folks mean for the commodity pools/managed futures funds sort of caught in between securities and futures regulations:Â Continue Reading…
Thursday, March 21st, 2013
The fastest growing segment of the financial services industry was the one hardest hit by MF Global’s suspicious demise and overt fraud at Peregrine Financial Group (PFG).
The managed futures industry, which had grown from $14 billion under management in 1991 to over $329 billion to end 2012, was a shining star of the new economy. Offering the unique ability to zig when other investments zagged, the lack of correlation and performance during crisis were key points of attraction. This attraction came to a screeching halt with the MF Global and PFG criminal incidents. Not only were investors getting acquainted with the asset class shocked to learn their accounts were looted of assets, but more troubling criminal behavior appeared the cause - casting a shadow over all participants.
“There is a severe loss of trust, a loss of confidence. There is incredible anger and frustration. Things need to change,” said Diane Mix Birnberg, president of Horizon Cash Management. Her firm just released a study, The Aftermath of MF Global and Peregrine Financial Group Meltdowns: A Crisis of Trust, showing that a whopping 91% of respondents believed there was a breakdown in audit procedures.
The study themes that emerged included:
- The laws and rules that govern the industry need to have ‘teeth’ â and those involved in fraud and theft need to be punished.
- Customer segregated funds must either be kept completely out of the FCM and/or be verified in real-time by regulators.
A strong and rare female voice inside a Type A male dominated industry, Ms Birnberg’s firm, Horizon Cash Management, has become the top cash management firm for participants in the managed futures industry. Starting in the 1970s as a secretary in a stock brokerage firm in Atlanta, where “women generally didn’t think about career aspirations,” she later joined Lehman Brothers in the bond business. After moving to New York City to work on Wall Street, she was recruited in 1980 by investors to operate a cash management firm in the futures industry and in 1991 founded Horizon Cash Management, which currently has $2 billion under management.
In MF Global “there was very little institutional leadership (from exchanges, regulators and major firms),” she said. “This resulted in rumor, innuendo and ultimately a lack of trust. The void in leadership is terrifying.”
Looking back on the MF Global and PFG disasters, Ms. Birnberg has the experience of witnessing 10 FCM implosions. “In every FCM implosion it has negatively touched the CTA / CPO segment of the industry.”
“Think about a plane crash,” she said. “When it happens? Key issues and facts are addressed by the airline, the FAA and even the US president. Information is available regarding what happened, why it happened and steps being taken to address the problem.”
With MF Global a plane crashed and there was silence.
This is the first part of a two part article.
Mark Melin is author of three books and taught a managed futures course for Northwestern University’s Executive Education program. To read additional blog posts visit www.UncorrelatedInvestments.com (requires free registration).
Saturday, March 16th, 2013
Mark Shore, Adjunct Professor of managed futures at DePaul Universityâs Kellstadt Graduate School of Business in Chicago and 25 year veteran of the futures industry notes increased interest in managed futures for the last several years.
âAssets under management in managed futures have increased nearly 63% since 2008, and over 700% since 2000 according to BarclayHedge.â To help explain the managed futures message, Shore announced DePaul University will once again offer a graduate level managed futures course in the spring.
As the demand for asset allocation education and alternative investment education increases, Shore notes, “individual & institutional investors and the graduate students are asking more questions about managed futures, a topic often found unfamiliar to many.â
Does the recent market volatility increase the interest to understand managed futures?Â âThe abnormal market volatility in recent years has a number of investors increasingly questioning the core principles behind a diversified investment portfolio, he said. âWhatâs needed is a greater understanding of dynamic correlation and tail risk.â
Copyright Â©2013 Mark Shore. Contact the author for permission for republication at email@example.com Mark Shore has more than 25 years of experience in the futures markets and managed futures, publishes research, consults on alternative investments and conducts educational workshops.
Mark Shore is also an Adjunct Professor at DePaul University’s Kellstadt Graduate School of Business in Chicago where he teaches a managed futures / global macro Mark is a contributing writer to Reuters HedgeWorld, the CBOE Futures Exchange and Micro-Cap Review.
Past performance is not necessarily indicative of future results. Â There is risk of loss when investing in futures and options. Â Always review a complete CTA disclosure document before investing in any Managed Futures program. Â Managed futures can be a volatile and risky investment; only use appropriate risk capital; this investment is not for everyone. Â The opinions expressed are solely those of the author and are only for educational purposes. Please talk to your financial advisor before making any investment decisions.
Saturday, March 9th, 2013
Although it hasn’t been written about nor formally discussed, understanding a managed futures investment from the standpoint of market environments and macro performance drivers first solves many problems for asset managers.
Â· It enables a quick description of the investment to provide the investor and understanding of how beta performance is generated
Â· Allows the asset manager to establish logical performance expectations in two sentences
Â· Sets up further structural analysis with performance measures relative to the strategy
Â· It enables logical strategic correlation consideration
Â· It explains how and why the investment operates
How Beta Performance Drivers Work
Each of the primary managed futures strategies have an environment in which they are expected to find success and relative failure.
For instance, several strategies are based on the market environment of price persistence.Â These include trend following, breakout, momentum among the many similar named strategies.
Other strategies are based on the market environment of relative price divergence and then convergence back to a statistical mean.Â These include relative value, arbitrage and strategies based on how pricing of one asset relates to a related asset.
Strategies based on the market environment of volatility utilize options and have a different set of considerations depending on the specific strategy type.
Describing The Investment
The first step in the analysis process is to identify this beta performance factor, which leads to an understanding of performance generation factors and can assist in setting expectations.Â Using the market environment performance driver, an asset manager may describe the investment as such:
âThis trend following program has a macro performance driver of price persistence.Â It is expected to prosper when the price of a given asset moves in one consistent direction.â
In two sentences, the investor can set macro performance expectations when the investment should and should not work, as well as provide the core strategic logic as to why the investment is so uncorrelated to that of the stock market.
Performance Measures Relative to Strategy
Another reason to understand the performance driver concept is that the performance measures should be relative to each strategy.Â For instance, trade time frame might be given a different weighting in a trend following program than certain volatility programs.Â Expected margin to equity usage, win percentage and correlation to the equity markets during times of crisis are all examples of performance measures that are different relative to each strategy.
The important takeaway is with each performance driver, the relative alpha strategy considerations of the managers can vary.Â Thus starting at the high level and working downward is most appropriate.
Mark Melin is author of three books, including High Performance Managed Futures, taught a course for Northwestern University’s executive education program and edits the web site www.Uncorrelated-Investements.com. Â Entire contents Copyright (C) Mark Melin 2013
Friday, March 1st, 2013
How does one define a previously un-definable topic such as High Frequency Trading (HFT)?
Sources close to the Commodity Futures Trading Commission (CFTC) indicate new thinking may be underway regarding the topic of High Frequency Trading (HFT). Speculation is this thinking could look at the relative market impact HFT may have in a given market move as a legal definition. Such a definition could consider the relative impact of a particular HFT player as a percentage of a market damaging move and could be used for potential CFTC action on the issue. This new thinking could be outlined sometime in March, sources said.
Current US regulation regarding HFT is considered by some market participants to be behind the curve relative to the European Union. In the EU, for instance, algorithm type is used as an identifier to determine market participant behavior during crisis conditions.
“There is significant uneasiness on the speed in markets,” noted Vassilis Vergotis, Executive Vice President, Head of Eurex, Americas.
For the full article, visit the source web site (requires free registration):Â http://www.uncorrelatedinvestments.com/blog/?p=59
Mark H. Melin is author of several books, including High Performance Managed Futures and taught on the topic at Northwestern University’s Executive Education program
Thursday, July 26th, 2012
Mathema took a look at April 2012 hedge fund performance and saw increasing correlation, which the research firm pointed out essentially offset the benefits of diversification. Read the entire May report below.
Mathema May 2012 Global Investment Insight Report
Monday, June 4th, 2012
We find ourselves living in historic times along many fronts.
At a recent campaign event, presidential hopeful Mitt Romney took a hard look at the reality of government debt, noting that the thorny crisis caused by perpetual can kicking will likely be faced by our kids in the near future.
While Mr. Romney is right to address the seriousness of the government debt issue, he may be slightly off on the timing of this trade. While he anticipates the debt crisis to require attention “by our kids,” mathematical logic might indicate the problem could fester in the very near future â potentially in three to five years in the United States, according to some projections. The mathematical logic indicates that the over expansive monetary policy that lead governments to embrace expenditures significantly higher than their revenues is coming to an end. Greece is example A of a society that received a natural margin call. With debt to GDP breaking into triple digits, investors might take note that all governments will likely receive their “margin call” at some point. The question is, when?
Republican Congressman Paul Ryan (Wisconsin) may have corrected Romney’s timing. Speaking on Meet the Press on Sunday, May 20, Representative Ryan called for a potential US debt crisis in two to four years. This coincides with other credible projections. “We could have a debt crisis in (the US in) 2-3 years absent action,” observed David Walker, former US Controller General and head of the Government Accountability Office (GAO). “There is a lot of irony and hypocrisy in Washington’s desire to make sure that JP Morgan has proper risk management practices,” Mr. Walker added, noting a general lack of appropriate risk management in government regarding deficit spending and leverage usage. Mr. Walker has been the early leader in speaking to the mathematical logic of a coming debt crisis, a message that few care to hear.
Making the required difficult and unpopular political decisions required to fix the debt problem will require significant political will. David Gregory of NBC’s Meet The Press noted this in his May 20, 2012 grilling of Republican Congressman Paul Ryan and Democratic Senator Dick Durbin. This is because over-leveraged governments have really two choices, neither of which are positive. In other words, there are no easy answers to the debt problem, only “worse and worser,” as author John Mauldin is so fond to point out the harsh reality.
What is the mathematical and practical logic behind a two to three year debt crisis projection?
Here is the reality, the wakeup call: In the United States, a demographic shift in three to five years is about to strain budgets as the government continues to spend nearly double its revenue. This is well documented in a Bloomberg BusinessWeek article written July 27, 2011. This demographic shift occurs when baby booming seniors retire in historic numbers, straining government benefits. This strain may occur the same time interest rates have risen, as a once infallible fiat currency discovers its fallibility. This strains a budget just when expenditures are running nearly double revenues. That’s the mathematical logic, one potential outcome. But the undeniable truth is that deficit spending such as being exhibited by government would be alarming on any balance sheet, but the fact that it isn’t even being addressed in a serious fashion is troubling, the root cause of the debt crisis.
Consider Greece from the basic perspective of their out of control leverage usage, with government spending well beyond revenues for years. When asked to face the economic problem and address the core structural issues through austerity â the widely unpopular `political choice â politicians prefer to kick the can down the road. The problem Greek political leaders face is they have just discovered the limits of how far the can kicking can last.
Is Greece a “One Off?”
When investors take a pure mathematical look at the structural problems, similar core issues appear in other over-leveraged western societies. Portugal, Spain, Italy, France, to name a few, all have the same structural spending problem, which could come to a head shortly. And from a mathematical perspective similar problems exist with the government who currently holds the reserve currency of choice status. At a basic level an understanding needs to take place that the root of the difficult problem is spending must be cut and revenues need to be increased. This will become a political football, a tug of war of epic proportion.
Will False “Growth” Through Easy Monetary Policy Solve the Problem?
In the past, the easy solution for government has been to stimulate growth through quantitative easing. Such tactics of “adding liquidity” typically work well early in a debt cycle but have less impact the more they are used. An example of this in the US can be found by examining the significant impact of an easy monetary policy during the 1980s and contrasting this to the relatively diminishing return on “growth” that today’s quantitative easing has on the economy. If one were a trader looking at the debt crisis they might conclude the significant risk of adding leverage to the government debt trade might not be worth the diminishing reward.
The key for investors is to recognize that the market environment to which western economies are headed may require difficult political solutions, which will not be easily solved without volatility. This could lead to a very different economic environment to which investors should be prepared to defend against. Economic environments that perhaps could be punctuated with bouts of volatility with strong market price trends emerging both positive and negative.
To read the entire article, click here
Mark Melin will be speaking on a panel at HedgeWorld June 6 @ 1:30 regarding MF Global. Click here for the agenda.
About the Author: Mark Melin is host of the internet video show Uncorrelated Investing and editor of Opalesque Futures Intelligence, a newsletter written for professional investors that covers investments in the futures and options industry. A futures industry practitioner and consultant, Mark has taught managed futures as an adjunct instructor at Northwestern University / Chicago and has written or edited three books, including High Performance Managed Futures (Wiley 2010) and The Chicago Board of Trade’s Handbook of Futures and Options (McGraw-Hill 2008). Mark has worked as a consultant to the Chicago Board of Trade and OneChicago, the single stock futures exchange. He was director of the managed futures division at Alaron Trading until they were acquired by Peregrine Financial Group in 2009. Mark worked with Peregrine Financial Group until 2011.
All contents copyright 2011 Â© Mark H. Melin all rights reserved.
Risk Disclosure: This article is intended for educational and informational purposes. Past performance is not always indicative of future results. There is risk of loss when investing in futures and options. Managed futures investing can involve volatility and may not be appropriate for all investors. The opinions expressed are solely those of the author, they are not appropriate for all investors and may not have considered all risk factors.
Friday, May 25th, 2012
Street of Walls is out with its latest analysis of hedge fund SEC Form 13F filings. As we have point out previously, the 13F filings are an interesting, if incomplete, trailing indicator of hedge fund sentiment. Nevertheless, it makes for good reading and the Street of Walls folks do a nice job digging through them and synthesizing what they find.
Here are the highlights of their report:
- The most crowded new ideas during the quarter were AAPL, GOOG, WYNN, and HCA. Other new positions shared among hedge funds but with less overlap were PCLN, DTV, LBTYA, SHW, ANV, NFLX, VRSN, SHW, TRIP, and SIRI.
- Excluding large allocation from Hayman, Financials saw a -2.0% decline in sector exposures. Low rates and mortgage related put-back problems in Financials may have led managers to trim and exit positions within the space throughout 2011 and into 2012.
- We found a majority of hedge funds largest positions were shared amongst the hedge funds in our universe. AAPL was by far the most crowded position in the top 12 holdings for hedge funds: Greenlight, Lone Pine, Appaloosa, Maverick, Passport, Blue Ridge, Coatue, and Tiger all have AAPL as one of the largest position in their holdings. Other large crowded positions include GOOG, ESRX, DLPH, QCOM, and C.
- On average the funds listed below bought companies with a 2012 forward price to earnings ratio of 17.5x vs. 18.6x last quarter. Appaloosa and Baupost bought into the higher valuation stocks at 47.4x and 27.9x respectively while Glenview and Hayman bought into much lower valuations at 12.4x and 11.8x respectively.
To read the full report at streetofwalls.com, click here.
Tuesday, April 24th, 2012
Hedge fund strategies tracked by the Dow Jones Credit Suisse Hedge Fund Index trailed equity returns in the first quarter of 2012, but if investors knew where to look there were some individual funds that outperformed.
For instance, Global Macro managers as a whole returned 1.58% on an absolute basis in the Jan. 1 to March 31 period, below the 4.04% return of the broad hedge fund index and the 12.59% of the Standard & Poor’s 500 stock index. However all of the funds in the top-10 for global macro as tracked by Dow Jones Credit Suisse outperformed not only the broader hedge fund index, but the S&P 500 as well (see chart below).
The full chartâincluding top absolute return data for Convertible Arbitrage, Dedicated Short Bias, Emerging Markets, Equity Market Neutral, Event Driven, Fixed Income Arbitrage, and Long/Short Equity Hedgeâis available to HedgeWorld Premium Plus members here. It comes out monthly, as do charts covering top risk-adjusted performance, top fund-of-funds performance and index and sub-index net performance. If you don’t have a Premium Plus membership, click here to find out how to get one: hedgeworld.com/membership/.
Tuesday, March 20th, 2012
In its latest Hedge Fund Strategies Review Report, research firm Mathema finds that far from being the success story that central bankers claim, the same euro zone problems that emerged in the summer of 2011 have escalated due to “creeping liquidity bubbles that have been supporting risky assets since January.”
Among Mathema’s other findings:
- Central Banksâ ammunitions finally came to an end: ECBâs LTRO program and âanticipatedâ QE3 in the US look the ultimate tentative to support the market through injection of liquidity. Going forward the
macro picture should reflect fundamental factors rather than political biases.
- Hedge Fund managers found relief in the removal of short-selling restrictions in EU Countries. Abundant liquidity supports the long side of the trades, M&A, and sharesâ buy-backs. Deep-recession, contagion risk & crowded trades into high-yielding names might trigger tail risks
on the downside.
- Markets display a two-sided scenario: carry-trade fuels risky assets (borrowing EUR and USD at historical low rates and then invest into cash-rich and high-dividend yield companies) and real-money still secured into gold and safe currencies.
- Whatever new bubbles will be created in the future the time machine has not been invented yet. Postponing actions (wasting time) is not the equivalent to jumping into the future. All these measures cannot skip the real problems, and the longer the time lost before fixing the problems the greater the pain will be.
- In the last two months we have upgraded a number of strategies. Nonetheless, in the short-term we remain positive on two hedge fund sub-strategies only - fixed-income arbitrage and equity market-neutral.
Read the entire report by clicking on the link below (PDF).
Mathema March 2012 Hedge Fund Strategy Iinsight Report