By Mark Shore
mshore@shorecapmgmt.com

Since the economic decline in 2008, there has been a growing demand of individual and institutional investors to consider various choices of non-correlated investments to reduce tail risk (downside deviation)(i) and correlation risk, often known as alternative investments.

There is a good chance an investor will have stocks and bonds in their portfolio via a 401k, IRA, pension fund or directly into mutual funds. Perhaps they have some real estate either as an investment or the home they live in and maybe some private equity.

In 2008 and 2009, most stocks both domestically and foreign became highly correlated as they headed south and everyone was seeking the exit door simultaneously, thus causing losses to extend as panic selling and the need to liquidate increased.

One of the increasing areas of non-correlation investment is the currency market or sometimes called forex or FX (foreign exchange). In August, 1971 President Nixon removed the U.S. dollar from the gold standard, ending the Bretton Woods agreement and causing currencies to float at market rates. In December 1971, Professor Milton Friedman wrote “The Need for Futures Markets in Currencies”.(ii) May, 1972, the Chicago Mercantile Exchange introduced currency futures.(iii)

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Copyright ©2012 Mark Shore. Contact the author for permission for republication at mshore@shorecapmgmt.com Mark Shore publishes research, consults on alternative investments and conducts educational workshops. www.shorecapmgmt.com 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 course.

Past performance is not necessarily indicative of future results. There is risk of loss when investing in futures and options. Always review a complete CTA disclosure document before investing in any Managed Futures program. Managed futures can be a volatile and risky investment; only use appropriate risk capital; this investment is not for everyone. 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.

Our weekly newsletter is out, and once again we have reason to regard hedge funds as a headache. The media usually lumps in managed futures when talking about some of the perceived bad stuff about hedge funds (survivorship bias, high fees, etc.) while failing to distinguish managed futures from hedge funds when it comes to discussing other items like poor crisis period performance, transparency, and liquidity. Managed futures often gets lumped in with the bad – even when it doesn’t apply.

While we missed it when it came out, a book called The Hedge Fund Mirage:The Illusion of Big Money and Why It’s Too Good to Be True, by Simon Lack, appears to be causing some of those guilty association issues between Hedge Funds and Managed Futures. While flying mostly under the radar for the first half of the year, the book has seen some recent interest as the Alternative Investment Management Association, or AIMA, saw fit to weigh in on the author’s assertions, leading to further blog posts and debates around the internet, in turn leading to a few clients of ours calling in asking for our thoughts.

We don’t like to debate things we haven’t read, so we picked up the book. As it turns out, there were a variety of arguments we agreed with and make ourselves on a regular basis (like hedge funds are just risk adjusted stock exposure dressed up as alternatives). A few more were drawn from questionable perspectives, but our biggest bone with the book was its treatment of managed futures – in that there were never any distinctions between the asset class and the rest of its hedge fund brethren

And of course the big talking point of the book is the line most often quoted from it, Lack’s assertion that, “if all the money that’s ever been invested in hedge funds had been in treasury bills, the results would have been twice as good.”

That sure got us thinking… is the same true of managed futures? We tackled the issues one by one to get to the conclusion.

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To read more Managed Futures research pieces, visit Attain’s Managed Futures Newsletter archive and our Managed Futures Blog.

DISCLAIMER

Forex trading, commodity trading, managed futures, and other alternative investments are complex and carry a risk of substantial losses. As such, they are not suitable for all investors.

The entries on this blog are intended to further subscribers understanding, education, and – at times- enjoyment of the world of alternative investments through managed futures, trading systems, and managed forex. Unless distinctly noted otherwise, the data and graphs included herein are intended to be mere examples and exhibits of the topic discussed, are for educational and illustrative purposes only, and do not represent trading in actual accounts.

The mention of asset class performance is based on the noted source index (i.e. Newedge CTA Index, S&P 500 Index, etc.) , and investors should take care to understand that any index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices: such as survivorship and self reporting biases, and instant history.

Managed Futures Disclaimer:

Past Performance is Not Necessarily Indicative of Future Results. The regulations of the CFTC require that prospective clients of a managed futures program (CTA) receive a disclosure document when they are solicited to enter into an agreement whereby the CTA will direct or guide the client’s commodity interest trading and that certain risk factors be highlighted. The disclosure document contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA.

Copyright © 2011 Attain Capital Management, licensed Managed Futures, Trading System & Commodity Brokers. All Rights Reserved. Reprinted with permission.

Published July 31, 2012
CBOE Futures Exchange
“Futures in Volatility” Newsletter
By Mark Shore

While analyzing the utility value of the CBOE Volatility Index (VIX) futures® contract relative to the underlying market (S&P 500), a question often arises regarding the correlation of these two instruments. In this article we look at various durations of rolling correlations to determine its utility value.

The “static” correlation of two investment components is often quoted in a correlation matrix table when multiple markets are discussed or if there are only two markets, a single quote.

From January 2004 to June 2012, static correlation of daily VIX end of day data to the S&P 500 is -0.75. However, a static correlation does not always offer a strong profile of correlation. Correlation typically depends on the time duration of a holding period, thus building a profile of that period. One must keep in mind the S&P 500 has a growth component, whereas the VIX is more of a mean reverting market with moments of upward or downward spikes.

Between January 2004 and June 2012, the VIX reached its maximum close of 80.06 on October 27, 2008. It reached a minimum of 9.89 on January 24, 2007. During this period the VIX has averaged 21.08

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Copyright ©2012 Mark Shore. Contact the author for permission for republication at info@shorecapmgmt.com Mark Shore has more than 20 years of experience in the futures markets and managed futures, publishes research, consults on alternative investments and conducts educational workshops.

Past performance is not necessarily indicative of future results. There is risk of loss when investing in futures and options. Always review a complete CTA disclosure document before investing in any Managed Futures program. Managed futures can be a volatile and risky investment; only use appropriate risk capital; this investment is not for everyone. 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.

Our weekly newsletter is out, and it’s been a week since we released our semi-annual CTA rankings, which means it’s time for us to spotlight one of our top ranked managers. Since we already highlighted Newport Capital Management when they sat perched atop the rankings at the beginning of the year, we decided to put the focus on the #2 ranked Briarwood Capital Management.

They aren’t what you might expect out of a top-ranked CTA (and neither was Newport). Their program was not developed to rake in 30%+ returns on a monthly basis. They do not have a slew of computer programmers from MIT on their staff. They aren’t a Winton or a Transtrend in terms of AUM.

No, Briarwood does not fit the mold of a typical managed futures superstar, but that may be exactly why they’ve got our attention. From a refreshing perspective on program creation to a no frills approach to trading, Briarwood has their ducks in a row, and offers, in our opinion, a solid opportunity for those looking for a trend following addition to their portfolio. Check out our newsletter for all the details.

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To read more Managed Futures research pieces, visit Attain’s Managed Futures Newsletter archive and our Managed Futures Blog.

DISCLAIMER

Forex trading, commodity trading, managed futures, and other alternative investments are complex and carry a risk of substantial losses. As such, they are not suitable for all investors.

The entries on this blog are intended to further subscribers understanding, education, and – at times- enjoyment of the world of alternative investments through managed futures, trading systems, and managed forex. Unless distinctly noted otherwise, the data and graphs included herein are intended to be mere examples and exhibits of the topic discussed, are for educational and illustrative purposes only, and do not represent trading in actual accounts.

The mention of asset class performance is based on the noted source index (i.e. Newedge CTA Index, S&P 500 Index, etc.) , and investors should take care to understand that any index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices: such as survivorship and self reporting biases, and instant history.

Managed Futures Disclaimer:

Past Performance is Not Necessarily Indicative of Future Results. The regulations of the CFTC require that prospective clients of a managed futures program (CTA) receive a disclosure document when they are solicited to enter into an agreement whereby the CTA will direct or guide the client’s commodity interest trading and that certain risk factors be highlighted. The disclosure document contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA.

Copyright © 2011 Attain Capital Management, licensed Managed Futures, Trading System & Commodity Brokers. All Rights Reserved. Reprinted with permission.

It’s that time of year again, when we have the data for all of the CTAs we track through the first half of 2012, allowing us to try and answer the question we get on a daily basis: What’s your BEST managed futures program? That question is always a tricky one, as depending on who is asking it, they may want to know any one of several variations on who is best. Best last year? Best for all time? Best risk adjusted return? Best in terms of lowest drawdowns?

What do we base these rankings on? We’ve dedicated extensive resources over the years to analyzing and testing a rankings system that would best reflect what we believe to be the important metrics for measuring competency in this investment space.

This is trickier than it looks, to be sure. Put too much emphasis on returns, and you penalize those who control risk well. Too much emphasis on experience, and you penalize a potential new star who has performed well in their first 5 years. Too much reliance on the present, and you discount the past, but with too much on the past and you discount the present.

That being said, we believe the formula we’ve crafted is one of the most comprehensive in the industry. Click through to find out why, and who wound up on top.

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To read more Managed Futures research pieces, visit Attain’s Managed Futures Newsletter archive and our Managed Futures Blog.

DISCLAIMER

Forex trading, commodity trading, managed futures, and other alternative investments are complex and carry a risk of substantial losses. As such, they are not suitable for all investors.

The entries on this blog are intended to further subscribers understanding, education, and – at times- enjoyment of the world of alternative investments through managed futures, trading systems, and managed forex. Unless distinctly noted otherwise, the data and graphs included herein are intended to be mere examples and exhibits of the topic discussed, are for educational and illustrative purposes only, and do not represent trading in actual accounts.

The mention of asset class performance is based on the noted source index (i.e. Newedge CTA Index, S&P 500 Index, etc.) , and investors should take care to understand that any index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices: such as survivorship and self reporting biases, and instant history.

Managed Futures Disclaimer:

Past Performance is Not Necessarily Indicative of Future Results. The regulations of the CFTC require that prospective clients of a managed futures program (CTA) receive a disclosure document when they are solicited to enter into an agreement whereby the CTA will direct or guide the client’s commodity interest trading and that certain risk factors be highlighted. The disclosure document contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA.

Copyright © 2011 Attain Capital Management, licensed Managed Futures, Trading System & Commodity Brokers. All Rights Reserved. Reprinted with permission.

Here we take a look at the June 2012 and year-to-date through June performance for the top 5 managed futures funds, as tracked by Lipper’s hedge fund database. To see more analysis, including assets under management and domicile information for the top 10 funds, click here. To be truly connected to all the Lipper analytics available on HedgeWorld, become a HedgeWorld Premium Plus member. To find out more about how to do that, visit hedgeworld.com/membership/.

Our weekly newsletter is out, and this week we’re breaking down the players in the futures industry. These days, the futures industry has been in the spotlight in a way we’ve never seen. Granted, we can think of better reasons to pay attention to our corner of the world, but the enhanced attention to our space has highlighted another issue – the fact that the public, at large, has little understanding of the futures industry in general. From reporters referring to FCMs as brokers, to the press using the term managed futures funds, to a seemingly never ending stream of questions related to what, exactly, an FCM does, it appears that the only thing that’s clear is a desperate need for clarity.

Understanding the distinctions between various actors in this space is important to both investors and media alike. It can help provide guidance on who to work with, and what to be thinking about when making investment decisions. It’s also pretty critical to establishing a wider understanding of the significance of what’s been happening in our industry. So let’s break it down – who the players are, who they answer to, and how those roles might be evolving in the coming months and years. To see the full breakdown on our site, click here.

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To read more Managed Futures research pieces, visit Attain’s Managed Futures Newsletter archive and our Managed Futures Blog.

DISCLAIMER

Forex trading, commodity trading, managed futures, and other alternative investments are complex and carry a risk of substantial losses. As such, they are not suitable for all investors.

The entries on this blog are intended to further subscribers understanding, education, and – at times- enjoyment of the world of alternative investments through managed futures, trading systems, and managed forex. Unless distinctly noted otherwise, the data and graphs included herein are intended to be mere examples and exhibits of the topic discussed, are for educational and illustrative purposes only, and do not represent trading in actual accounts.

The mention of asset class performance is based on the noted source index (i.e. Newedge CTA Index, S&P 500 Index, etc.) , and investors should take care to understand that any index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices: such as survivorship and self reporting biases, and instant history.

Managed Futures Disclaimer:

Past Performance is Not Necessarily Indicative of Future Results. The regulations of the CFTC require that prospective clients of a managed futures program (CTA) receive a disclosure document when they are solicited to enter into an agreement whereby the CTA will direct or guide the client’s commodity interest trading and that certain risk factors be highlighted. The disclosure document contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA.

Copyright © 2011 Attain Capital Management, licensed Managed Futures, Trading System & Commodity Brokers. All Rights Reserved. Reprinted with permission.

Here we take a look at the year-to-date through May 2012 risk-adjusted performance for the top 5 managed futures funds, as tracked by Lipper’s hedge fund database. To see more analysis, including assets under management and domicile information for the top 10 funds, click here. To be truly connected to all the Lipper analytics available on HedgeWorld, become a HedgeWorld Premium Plus member. To find out more about how to do that, visit hedgeworld.com/membership/.

Here we take a look at the May 2012 and year-to-date through May performance for the top 5 managed futures funds, as tracked by Lipper’s hedge fund database. To see more analysis, including assets under management and domicile information for the top 10 funds, click here. To be truly connected to all the Lipper analytics available on HedgeWorld, become a HedgeWorld Premium Plus member. To find out more about how to do that, visit hedgeworld.com/membership/.

Our newsletter for the week is out, and we’re addressing a common lament in financial circles of late – the apparent lack of quality alternative invesment educational materials. Don’t get us wrong – we KNOW managed futures certainly doesn’t have a representative body of literature dedicated to it (aside from ours) – but in the wider world of alternative investments, and investing in general, there actually are a fair number of books that are not only worthy of your attention, but may help you to better understand the decisions ahead of you. Or, at least, laugh a little bit along the way.

So here we break down the financial missives and exposés that  our office has been reading and highly recommends. Or, as we jokingly refer to it around the office, a Master’s degree in “Alternative Investment History, Operation, and Marketing” from the University of Malec.

Time to hit the books.

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To read more Managed Futures research pieces, visit Attain’s Managed Futures Newsletter archive and our Managed Futures Blog.

DISCLAIMER

Forex trading, commodity trading, managed futures, and other alternative investments are complex and carry a risk of substantial losses. As such, they are not suitable for all investors.

The entries on this blog are intended to further subscribers understanding, education, and – at times- enjoyment of the world of alternative investments through managed futures, trading systems, and managed forex. Unless distinctly noted otherwise, the data and graphs included herein are intended to be mere examples and exhibits of the topic discussed, are for educational and illustrative purposes only, and do not represent trading in actual accounts.

The mention of asset class performance is based on the noted source index (i.e. Newedge CTA Index, S&P 500 Index, etc.) , and investors should take care to understand that any index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices: such as survivorship and self reporting biases, and instant history.

Managed Futures Disclaimer:

Past Performance is Not Necessarily Indicative of Future Results. The regulations of the CFTC require that prospective clients of a managed futures program (CTA) receive a disclosure document when they are solicited to enter into an agreement whereby the CTA will direct or guide the client’s commodity interest trading and that certain risk factors be highlighted. The disclosure document contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA.

Copyright © 2011 Attain Capital Management, licensed Managed Futures, Trading System & Commodity Brokers. All Rights Reserved. Reprinted with permission.