1. finance
2. investing
3. futures trading

Why Advisors Aren’t
Getting What they
Want out of
Managed Futures
Attain Portfolio Advisors
1 East Wacker Drive
Suite 3000
Chicago, IL 60601
312.604.0926
www.AttainFunds.com
[email protected]
1
Attain Portfolio Advisors
Quick Summary:
• Seemed like the perfect diversifier following 2008, but most
advisors got involved after that, when managed futures has
posted its worst ever 4 year returns
• RIAs mainly accessed space through private funds, B/D
offered funds, or new “40 Act” managed futures mutual
funds; most of which relied on the largest names in the
space such as Winton and Man AHL (a sort of “nobody ever
got fired buying IBM mentality”), and charge a hefty
premium for accessing the ‘brand names’.
• These large managed futures programs (over $1 Billion AUM)
are heavily skewed towards financial markets (stocks, bonds,
and currencies) because they are too large (because of
market impact and position limits) to access commodities
markets like Corn, Cotton, and Cocoa.
• Several of the so called managed futures mutual funds
actually provide no access to managed futures managers,
and rely on a single indicator
• The performers since 2009 have been the harder to find midtier managers who can access more than just financials, and
have significant commodity exposure
Futures Trading involves the risk of substantial losses. Past Performance is Not Necessarily Indicative of Future Results.
www.AttainFunds.com
312.604.0926
800.311.1145
2
Attain Portfolio Advisors
1. Managed Futures are in their ‘Crisis Period’
While it doesn't make the headlines as much, this is managed futures 2008... Managed Futures is
in its crisis period now. The main managed futures benchmark indices are all at 4 year lows and
sitting just above their worst drawdown levels in the past 15 years - at 32 months and -11.8%
from their past all time highs.
(Disclaimer: Past performance is not necessarily indicative of future results)
Source: Gold data from USAgold.com; S&P Depression data from MorningStar;
S&P 500 (post depr.) data from Yahoo Finance;
Real Estate data from Case Shiller U.S. National Price Home Index;
Managed Futures data from Newedge, Barclayhedge CTA Index, and Dow Jones Credit Suisse;
Bonds data from Fidelity Investment Grade Bond
But even with this period for managed
futures the worst on record - reminding
many of the ‘generational low’ terminology
used by the stock folks circa 2009 - the
comparison with other asset classes worst
losing periods in the chart above is hardly a
comparison at all, with managed futures
losing period just a fraction of what has
been seen in stocks and Gold, for example.
But with trend following being the
backbone of most managed futures
programs, the question being asked during
this difficult period is… is trend following
dead? Everyone seems to have a different
unscientific explanation for the so called
death of trend following, with the following
the main arguments supporting why trend
following is dead:
Futures Trading involves the risk of substantial losses. Past Performance is Not Necessarily Indicative of Future Results.
www.AttainFunds.com
312.604.0926
800.311.1145
3
Attain Portfolio Advisors
Does Trend Following have these issues?
1. There is too much money in trend
following now, distorting the trends
in the markets.
We’ve covered how the zero bound doesn’t
necessarily mean no opportunity in bonds
for managed futures.
2. Continuous government intervention
in the markets has stymied the
development (expansion) of
significant trends.
That leaves HFT and its possible negative
effects, which we really don’t know how to
gauge or measure. But it is well reported
that HFT is on the wane and it seems a
stretch to think that algorithms getting into
and out of the market in milliseconds affect
the performance of trend followers holding
weeks to months.
3. Risk on/risk off trading has brought
all correlations to one- there is no
diversification anymore.
4. Interest rates at 0% have made it too
difficult to make money.
5. High frequency trading has
destabilized the natural progression
of the market cycles.
To tackle these – we’ve seen AQR answer
the question of too much money being in
trend following with their research showing
trend following is at most 0.2% of the size
of the underlying equity markets, 3% of the
underlying bond markets, 5% of the
underlying commodity markets, and 0.2% of
the underlying currency markets. We know
from tracking such movements that Risk
On/Risk Off is essentially dead. We’ve seen
significant trends in markets like Grains
caused by weather, showing the
government interventions don’t cap every
opportunity, and even seen trends like the
move down in the Japanese Yen caused by
government intervention.
When it comes down to it, trend following
at its core is a long volatility strategy which
suffers frequent but small losses in
exchange for infrequent but large gains.
The strategy attempts to keep its head
above water until some market movement
provides a large outlier move in which the
strategy can profit. To say the periods
between these large outlier moves equates
to the strategy not working is akin to saying
your car isn’t working when going slow in
traffic, or that the market will not have
outlier moves moving forward (very hard to
believe).
Futures Trading involves the risk of substantial losses. Past Performance is Not Necessarily Indicative of Future Results.
www.AttainFunds.com
312.604.0926
800.311.1145
4
Attain Portfolio Advisors
2. Poor Packaging = Poor Performance
It isn’t easy for most managed futures
managers to access the Registered
Investment Advisor space. For one, CFTC
regulations require an RIA recommending a
futures account to customers be registered
with the CFTC as a commodity Trading
Advisor. Who wants to do that?
Secondly, your run of the mill managed
futures manager doesn’t know the first
thing about “securitizing” his program to
offer in a wrapper which appeals to
Advisors and Broker/Dealers, leading to
those with such securitization knowledge to
do the fee laden packaging on behalf of the
manager.
Third, the rush to access such strategies in a
“liquid form” via 40 Act mutual funds,
despite the laws prohibiting the use of
futures trading in a registered investment
company, led to creative financial
structuring such as total return swaps and
controlled foreign corps – adding additional
costly layers to managed futures access.
Add it all up, and most advisors we talk to
have accessed the managed futures space
through packaged products at the high end
of the cost spectrum, with this additional
cost drag adding to the already tough
environment managed futures find
themselves in. The poor environment is
actually highlighting those programs
overburdened with fees, causing them to
struggle in comparison to the programs
they provide access to and the asset class as
a whole, leading some advisors to question
whether the liquidity premium is worth it.
Futures Trading involves the risk of substantial losses. Past Performance is Not Necessarily Indicative of Future Results.
www.AttainFunds.com
312.604.0926
800.311.1145
5
Attain Portfolio Advisors
3. Bigger isn’t always Better
It costs money to operate a fund, go on road shows pitching advisors on your product, and wine
and dine the custodians to get your fund listed and available on their platforms so the investments
show up on client’s statements. So it should be no big surprise that those who play in that space
are mainly the biggest names with the most money to spend on the advisor channel.
It costs money to operate a fund, go on
And
these
bigger
namesadvisors
are enjoying
the power they wield, piling up assets even as performance
road
shows
pitching
on your
hasproduct,
lagged. and
The wine
old saying
the the
richcustodians
get richer has
and dine
t never been more true than in managed futures,
where over 65% of the assets are controlled by just 3% of the managers (just 35 of them).
But while more assets may beget more asset raising, it doesn’t necessarily mean more
success. Indeed, we looked at the BarclayHedge database and measured the average
monthly return for all programs going back 20 years, and found a distinct pattern of returns
falling as assets got larger.
Futures Trading involves the risk of substantial losses. Past Performance is Not Necessarily Indicative of Future Results.
www.AttainFunds.com
312.604.0926
800.311.1145
6
Attain Portfolio Advisors
There are several reasons for this, including
the deleveraging of a program to attract
more institutional assets, the inability to
access less liquid commodity markets such
as Cotton or Cocoa or Platinum without
hitting position limits, and the inevitable
mental shift to protecting assets under
management rather than growing them.
4. Managed Futures on the Cover
doesn’t mean there’s Managed
Futures on the inside
Despite the names on several managed
futures mutual funds and ETFs, they are not
trying to track managed futures as an asset
class at all. Take 361 Capital’s “Managed
Futures Strategy”, which has done quite
well in this poor period for managed
futures.
They actually don’t invest in any ‘managed
futures’ programs at all, instead using a
counter-trend strategy operating on US
Stock Indices only. You could probably
come up with something more different
than managed futures trend following
approach across bonds, currencies, grains,
energies, meats, metals, and more; but it
wouldn’t be easy. Suffice it to say, we have
serious doubts such an approach will deliver
the crisis period performance inverstors
expect out of the name ‘managed futures’.
Then there’s the Guggenheim (formerly
Rydex) and Wisdom Tree Managed Futures
Fund/ETF which are not even trying to track
managed futures as an asset class (despite
the name). Per the RYMFX prospectus a few
years ago: The Managed Futures Strategy
Fund seeks to provide investment results
that match the performance of a
benchmark for measuring trends in the
commodity and financial futures markets.
The Fund’s current benchmark is the
Standard & Poor’s Diversified Trends
Indicator®
One sentence, that’s all they need to pull
the old bait and switch on around $2 Billion
worth of investors at the time. The
Managed Futures Fund is not tracking any
of the hundreds of professional CTA
programs which manage over $266 Billion
nor any of the 20 programs which make up
the Newedge CTA index.
Instead of the likely to be very complicated
path of screening, hiring, and allocating to
actual managed futures programs and
managers and having to pay them
fees; Rydex chose to use a single indicator
to replicate managed futures performance
(although technically, again, they never
claim in their prospectus that they are
trying to do anything at all with managed
futures). The results have been rather
disastrous for those investors hoping to
track ‘managed futures” with the “Managed
Futures Fund.”
Futures Trading involves the risk of substantial losses. Past Performance is Not Necessarily Indicative of Future Results.
www.AttainFunds.com
312.604.0926
800.311.1145
7
Attain Portfolio Advisors
(Disclaimer: Past performance is not necessarily indicative of future results.
Call us old fashioned, but isn’t it just a bit
misleading to label products which have
ZERO exposure to actual managed future
programs with the names ‘Managed
Futures Fund’ and ‘Managed Futures ETF’?
Especially given their drastic
underperformance to the managed futures
index since launch…
5. Managed Futures doesn’t have to lose during a stock market rally
(Disclaimer: Past performance is not necessarily indicative of future results. Managed Futures = Newedge CTA Index)
Stock Market Cycles - Comparison Performance (Rolling 12 Month Returns)
<----------- Bear Market
When the S&P
12mo ROR is…
World Stocks
Bonds
Hedge Funds
Managed Futures
Choppy/Flat Market
Bull Market -------->
< -25%
-13% to -25%
0% to -13%
0% to 8%
8% to 15%
15% to 30%
> 30%
-43.40%
2.41%
-14.80%
9.14%
-19.53%
4.94%
2.38%
13.96%
-10.88%
9.62%
5.25%
10.83%
-0.67%
-1.42%
4.43%
1.10%
11.99%
3.09%
10.61%
3.06%
13.50%
5.78%
12.65%
6.52%
20.95%
8.95%
21.67%
2.02%
The 2007 and 2008 out performance by
managed futures over stocks (many people
forget that managed futures was up 8.05%
in 2007 while stocks lost -2.8% in the final 7
months of the year) during the market
selloff, and subsequent losing period for
managed futures while stocks
have been rallying has led many to believe
managed futures will always go up when
stocks go down, and down when stocks go
up. But this isn’t always the case. For one, a
longer perspective shows that managed
futures have performed in a wide range of
stock market environments.
Futures Trading involves the risk of substantial losses. Past Performance is Not Necessarily Indicative of Future Results.
www.AttainFunds.com
312.604.0926
800.311.1145
8
Attain Portfolio Advisors
What’s more, there are many managed
futures programs which have bucked the
status quo since 2009 by making money
while stocks have been rallying.
But a lot of these programs haven’t been
available to Investment Advisors, because a
lot of them are so called mid-tier managers
who fly under the radar of many
institutional investors by only managing
between $50mm and $1 Billion managers.
That has changed now
with the launch of
Attain’s Fund Platform,
which brings Advisors
access to vetted
managers in this space.
We believe these managers are ‘rightsized’, being small enough to still access
commodity markets like Cotton and Corn;
while large enough to maintain institutional
grade operations.
Here’s how a sampling have performed
since 2009 as compared to the benchmark
Newedge CTA Index:
Past performance is not necessarily
indicative of future results, thru 12/31/13
Attain Program:
Since ‘09
Max DD
Trend Following
Short Term Alpha^
Relative Value^
Agriculture^
Benchmark CTA Index
57.80%
54.02%
47.72%
42.83%
-1.10%
-18.54%
-20.25%
-21.10%
-20.25%
-11.63%
Disclaimer:
The Agriculture and Short Term Alpha
programs are Attain Platform funds
awaiting seeding. The listed statistics are
pro-forma numbers multiplying the
composite performance of M6 Capital
Management (Agriculture) and Eco Capital
Management (Short Term Alpha) by 1.5x,
then deducting 1% annually for expected
periodic expenses from fund operations.
The ‘Trend Following’ performance excludes
a Dec. ’12 writedown (~10%) due to assets
impacted in the bankruptcy of Peregrine
Financial Group Inc.
The ‘Relative Value’ statistics are pro-forma
numbers adjusting the composite
performance of the Emil Van Essen Spread
Program through April ’11 by 1% annually
for expected periodic expenses from fund
operations, and the performance of the
Attain fund thereafter.
Please refer to each fund’s disclosure
documents and the full disclaimer at the
end of this document for more information.
Futures Trading involves the risk of substantial losses. Past Performance is Not Necessarily Indicative of Future Results.
www.AttainFunds.com
312.604.0926
800.311.1145
9
Attain Portfolio Advisors
Start getting what you want out of
Managed Futures…
With the stock market at all time highs and
interest rates poised to move higher you’re likely to start getting more of what
you want from Managed Futures just by
keeping your exposure to the space and
benefitting from their crisis period
performance profile.
o What sort of packaging am I getting
my managed futures exposure
through?
o Am I invested in the largest
managers that can’t properly
access commodity markets?
o Is the low cost replication strategy
costing more in missed returns than
it is saving in cost?
o Is the strategy I’m using likely to
provide the managed futures ‘crisis
period’ performance profile I’m
expecting?
Advisors aren’t just throwing money at
those products with ‘managed futures’ in
their names anymore. They are taking the
time to understand what is under the hood,
and finding out how to get the most
efficient access to managed futures.
But it isn’t as simple as just waiting for the
right environment and using managed
futures as a wealth preservation tool during
crisis periods. The sophisticated advisor also
needs to consider the following to insure
they are getting what they want out of
Managed Futures all the time:
o How much extra is that packaging
costing my clients?
o Is the mutual fund wrapper worth
the liquidity premium?
o Are the managers of the mutual fund
even beating an equal weighted
portfolio of their listed components?
o Do I have to accept losing money
during a stock market rally?
They are partnering with firms such as
Attain to consult on their managed futures
exposure and detail what the costs,
strategies, and performance profile of their
investments in managed futures look like
for their clients. Call today to learn more.
Futures Trading involves the risk of substantial losses. Past Performance is Not Necessarily Indicative of Future Results.
www.AttainFunds.com
312.604.0926
800.311.1145
10
Attain Portfolio Advisors
Disclaimer
The information contained in this report is intended for informational purposes only. While the information and
statistics given are believed to be complete and accurate, we cannot guarantee their completeness or accuracy.
Attain has not undertaken to verify the completeness or accuracy of any of the information and statistics provided
by third parties.
As past performance does not guarantee future results, these results may have no bearing on, and may not be
indicative of, any individual returns realized through participation in this or any other investment. The risk of loss in
trading commodity futures, and an investment in this fund is speculative, as are the investments made by the
underlying manager. The fund trades in a variety of futures markets in the U.S. and abroad. Futures trading is highly
leveraged, and as a result, returns may be volatile. Leverage increases both the Fund's upside and downside
potential. You should therefore carefully consider whether such trading is suitable for you in light of your financial
condition. You may sustain a total loss of the investment.
Any specific investment or investment service contained or referred to in this report may not be suitable for all
investors. You should not rely on any of the information as a substitute for the exercise of your own skill and
judgment in making such a decision on the appropriateness of such investments. Finally, the ability to withstand
losses and to adhere to a particular trading program in spite of trading losses are material points which can
adversely affect investor performance.
We recommend investors visit the Commodity Futures Trading Commission ("CFTC") website at the following
address before trading: http://www.cftc.gov/cftc/cftcbeforetrade.htm
The brief description of risks below cannot adequately describe all of the risks associated with an investment in an
Attain platform Fund. Before deciding to invest, you should carefully read the entire offering memorandum and
consult with your own advisers.
Some of the performance metrics in this document compare the performance of various asset classes using indices
as a proxy. It should be noted 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. Further, there can be limitations and
biases to indices such as survivorship, self reporting, and instant history biases.
The success of the fund is dependent upon the ability of the manager to identify profitable investment opportunities
and successfully execute upon them, which requires a substantial amount of skill and a significant amount of
uncertainty. In addition, due to the structure of the Fund, both transparency and liquidity may be limited, with
withdrawals limited to the last business day of any month with requests submitted 10 days prior.
The Fund’s pool operator is Attain Portfolio Advisors, LLC, a wholly owned subsidiary of Attain Capital Management,
LLC (“Attain”), which operates as the introducing broker of the fund. A portion of the fees charged to the Fund by
the Trading Advisor are shared with Attain, and a portion of brokerage commissions paid by the manager to the
manager’s clearing broker are retained by Attain as the fund’s introducing broker.
Read more here: Legal & Disclaimers
Futures Trading involves the risk of substantial losses. Past Performance is Not Necessarily Indicative of Future Results.
www.AttainFunds.com
312.604.0926
800.311.1145
11
Attain Portfolio Advisors
1 East Wacker Drive
Suite 3000
Chicago, IL 60601
312.604.0926
www.AttainFunds.com
[email protected]
Futures Trading involves the risk of substantial losses. Past Performance is Not Necessarily Indicative of Future Results.
www.AttainFunds.com
312.604.0926
800.311.1145