Tag Archives: brian-haskin

The Best And Worst Of January: Managed Futures

Managed futures mutual funds and ETFs bounced back in January after having a tough month in December. In the first month of 2016, managed futures funds, including “CTAs” (commodity trading advisors), averaged gains of 2.05%. This, in a month when U.S. stocks, commodities and high-yield bonds all saw large drawdowns. Managed futures strategies have often been referred to as “crisis alpha”, and January’s performance shows why they have been labeled as such. Over the three years ending January 31, funds in the category generated average annualized returns of +3.36%. These returns were comprised of -1.79% annualized alpha and 0.58 beta relative to Credit Suisse Managed Futures Liquid TR USD Index. Top Performers in January The three best-performing managed futures mutual funds in January were: Equinox Funds dominated the managed futures category in January, occupying all three of the top spots. EBCIX, EQIPX, and MHFAX generated respective one-month gains of 6.81%, 6.17%, and 6.09% in January, greatly outperforming the category average of 2.05% Of the three funds, only MHFAX has been around for at least three years, and its three-year annualized returns through January 31 stood at +4.64%, ranking in the top 30% of the category. The fund’s three-year Sharpe ratio, a measure of risk-adjusted returns, was 0.51, compared to 0.34 for the category. Its three-year standard deviation, measuring volatility, stood at 9.69%, compared to the category average of 9.01%. MHFAX’s three-year alpha of -1.79% was equal to the category average, while its beta of 0.73 was higher than the category’s 0.58. Category leader EBCIX and #2 fund EQIPX launched in June 2014 and July 2015, respectively. EBCIX had one-year returns of 6.02% through January 31, ranking in the top 8% of the category. EQIPX was launched too recently for annual returns, but its six-month gains through January 31 stood at 4.69%, ranking in the top 6% of the category. Worst Performers in January The three worst-performing managed futures mutual funds in January were: TVTAX was by far January’s worst-performing managed futures fund, returning -7.02%. The fund, which launched in November 2014, had one-year returns of -13.93% through January 31, ranking in the bottom 7% of the category. Although they were the second- and third-worst performers in the category, FCMLX and DNASX’s January losses were considerably lighter than that of TVTAX, at 2.95% and 2.96%, respectively. Both FCMLX and DNASX launched long enough ago to have three-year returns, alphas, betas, Sharpe ratios, and standard deviations: FCMLX had three-year annualized losses of 2.61%, with a three-year alpha of -5.99%, beta of -0.03, a Sharpe ratio of -0.19, and standard deviation of 11.03%. DNASX’s respective stats were -1.42%, -1.09%, 0.42, -0.24, and 5.54%. Past performance does not necessarily predict future results. Jason Seagraves contributed to this article.

Distinction Between Mutual Funds And Hedge Funds Is Eroding

The growth of liquid alternatives combined with an evolving regulatory framework is leading to a confluence between ’40 Act mutual funds and private hedge funds, according to Wulf A. Kaal, contributor to the forthcoming Elgar Handbook on Mutual Funds. In an expert from that guide, titled Confluence of Mutual Funds and Private Funds , Mr. Kaal makes the case that mutual funds are becoming more like hedge funds in terms of strategy, while hedge funds are becoming more like mutual funds in terms of regulation. In Mr. Kaal’s view, this calls into question the distinction between mutual funds and private funds. Eroding Distinctions While it’s true that mutual funds and hedge funds still occupy distinct segments of the market, employ some different strategies, serve largely different clients, and are subject to different legal rules, the gulf between the two types of funds is eroding. This is due to a combination of market forces, as retail investors seek out alternative strategies while institutions demand greater liquidity and transparency; and regulatory changes such as the Jumpstart Our Business Startups Act (the “JOBS Act”), which makes it easier for non-accredited investors to fund private, startup enterprises, including via crowdfunding. Alternative AUM Growth In terms of market forces, Mr. Kaal points out that, since 2005, alternative investments have grown twice as fast as traditional investments, in terms of assets under management (“AUM”). Although traditional investments, i.e. long-only stocks and bonds, have seen AUM grow from $37.1 trillion in 2005 to $56.7 trillion in 2013; in terms of percentages, the growth in alternative AUM from $3.2 trillion in 2005 to $7.2 trillion in 2013, is greater. While traditional investments’ AUM grew by a total of 52.8% during the period under review, alternative investments saw their AUM more than double. Rate of Growth Across Alternative Investments Mr. Kaal breaks down AUM growth across three alternative-investment structures: Alternative mutual funds Hedge funds Private equity He also lists the AUM growth for all mutual funds – i.e., mostly traditional assets – as a control group. His findings: While all four categories suffered AUM drawdowns in 2008, alternative mutual funds had by far the strongest growth in 2009, 2010, 2011, and 2012. Alternative mutual funds continued to grow in 2014, but at an abated pace. All three alternative categories showed positive AUM growth for all years, save 2008, while traditional mutual funds lost ground in 2011. Conclusion Market forces and regulatory changes are leading to a confluence between mutual and private hedge funds – but what are the implications of this confluence? Mr. Kaal lists several areas he expects will be impacted, ranging from mutual fund governance to the structure of federal securities law, and he opines that possible effects of this confluence could include “drastic immediate repercussions for market participants.” He concludes his paper by calling for continued monitoring, scholarly evaluation, and regulatory scrutiny of these developments. For more information, download the full report . Past performance does not necessarily predict future results. Jason Seagraves contributed to this article.

First Trust To Launch Second Actively Managed Commodity ETF

In 2013, First Trust launched the actively managed First Trust Global Tactical Commodity Strategy ETF (NASDAQ: FTGC ), a fund that takes long positions in commodity futures. The time since has been difficult for commodities markets, and as a result, FTGC’s performance has suffered along with other funds in the category: For the year ending January 31, for instance, the ETF has returned -20.52%. However, these returns ranked in the top quintile of funds in its category. Long and Short Positions Perhaps in response, First Trust’s second actively managed commodity ETF – for which it filed paperwork with the Securities and Exchange Commission (“SEC”) on January 28 – will pursue an absolute returns strategy . This means the fund will take both long and short positions in pursuit of positive returns, irrespective of benchmarks, while aiming for lower volatility than traditional funds. The ability to take short positions will obviously help the fund produce positive returns, should commodities remain in a bear market. A long/short approach in the commodity sector has been very effective for the LoCorr Long/Short Commodity Strategy Fund (MUTF: LCSAX ), one of the few long/short commodity fund competitors in the mutual fund and ETF space. That fund has bucked the downdraft in the commodities markets and has generated annualized returns of 12.79% over the past 3-years through January 31. Offshore Subsidiary Like FTGC (and many other funds that use commodity futures), the new fund will invest up to a quarter of its assets in a subsidiary based in the Cayman Islands. This subsidiary will invest in commodity-based futures contracts, with certain tax advantages, while the remainder of the fund’s assets will be invested in cash and short-term debt. Commodities markets have been struggling, largely due to the extreme bear market in crude oil, but this has actually led to increased interest in actively managed commodity funds. As pointed out by ETF.com, Elkhorn and Van Eck have both filed for such funds over the past few months, but First Trust’s new fund is the first to include a short component. This, combined with the firm’s pedigree as the first to launch an actively managed commodities ETF of any kind lends gravitas to the new fund, which will be known as the First Trust Alternative Absolute Return Strategy ETF. Jason Seagraves contributed to this article.