Managed Futures ETF: the Alpha Question

Chidem Kurdas

The first time I interviewed Tim Pickering almost two years ago, he managed the Claymore Natural Gas Fund trading on the Toronto stock exchange in addition to the Auspice diversified managed futures program. Earlier this month I interviewed him again for Opalesque Futures Intelligence, a publication I edit.

Tim has been busy. He’s developed a third-generation commodity index, the basis of another Claymore ETF on the TMX, and a managed futures index, with a corresponding ETF in the pipeline.   A third-generation commodity index  aims to get the upside of commodity returns while avoiding some of the downside. It’s meant to be a better way to get commodity exposure.  But what does a managed futures index do? I asked Tim that question. 

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QE2 End May Fuel Eurodollar Futures

Chidem Kurdas

The Federal Reserve having wrapped up its quantitative easing,  interest rates become subject to forces pulling in opposite directions. This creates opportunity for trading short-term rates. One type of instrument used for this purpose is Eurodollar futures.

While interviewing specialists on the topic, I was impressed with the growth of this market.  They pointed out some distinctive attributes of interest rate futures. 

Gold May Pan Out, Silver Doubtful

Chidem Kurdas

There probably was a mini bubble in silver, by far the highest returning commodity of the past year. A bubble has been suspected in gold, too.  George Soros’s funds reduced gold exposure—as we at HedgeFundSmarts were the first to report, back in March.  But many hedge funds continue to hold precious metals companies or ETFs.

Larry Kantor, managing director and head of research at Barclays Capital, makes a key point about these markets. There is so much sentiment involved in precious metals that prices can’t be understood in terms of supply and demand, he says. Recently the price of gold went up apparently because of the metal’s role as safe haven  amid  Middle Eastern political turmoil and the European debt crisis.

Gold will struggle to go higher, according to Francisco Blanch, head of global commodities at Bank of America Merrill Lynch Global Research.

New Sweet Spot

Chidem Kurdas

A survey of institutions and hedge funds by Citi Prime Finance challenges the perception that investors prefer the largest funds—an impression that became received wisdom after the 2008 crisis.

FrontPoint Clients Seek Healthcare Replacement

Chidem Kurdas

A number of large investors were in the FrontPoint healthcare fund  that has been shutting down after inside trading allegations surfaced against a portfolio manager. Some of the investors are funds of funds that want to have healthcare equity strategies in their portfolio.

Analysts see healthcare as an attractive place to be. The healthcare sector is cheap, says Barry Knapp, head of  US equity strategy and a managing director at Barclays Capital.

Gold, Stock ETFs Notable in Portfolios

Paulson & Co.’s $4.4 billion holding in SPDR Gold Trust may be the single largest  investment in an exchange-traded fund. But many hedge funds as well as institutions hold a wide variety of ETFs either as a hedge or an inexpensive way of gaining from the rise of a chosen market.

Japanese Financial Attracts Big Funds

Chidem Kurdas

A number of large hedge funds, among them Renaissance 

Hedgies’ Energy MLP Strategies Vary

Chidem Kurdas

Some hedge funds invest directly in energy master limited partnerships. For instance, MLP specialist Swank Capital manages such hedge funds. Other managers prefer to invest indirectly, not having MLP expertise.

Jerry Swank, managing partner at Swank Capital and Cushing MLP Asset Management, says MLPs have been the top asset class for several years.

Commodities Follow Equity Index Precedent

Chidem Kurdas

Third-generation commodity index funds, using a rules-based approach to set the mix and weightings of individual commodities, are new.  Third-generation indexes may outperform the first generation, exemplified by S&P GSCI, by as much as 10% a year or better.

But the investment record is short. The first such ETF, the US Commodity Index Fund, was launched in August 2010—see interview with United States Commodity Funds chief investment officer John Hyland in Opalesque Futures Intelligence, a publication I edit.  

Paulson May Get Offshore Drilling Payday

Chidem Kurdas

There have been widespread reports of losses at John Paulson’s Paulson & Co., largely due to falls in gold, silver and oil. Another big Paulson investment, however, got a recent boost.