Q3 Was Good for Stocks, and Managed Futures. Now in Q4…

Most trend-following systems identified these trends, and added significant long positions in global interest rate markets and precious metals over the last several months.  To reinforce the historic non-correlation argument, trend-following returns from stock indices were muted during the quarter.  The volatility of stock markets created an environment that was not conducive to building positions, either long or short.  At the close Q3, however, managers had begun to build long positions in global stock indices as global stocks rallied during September.

Specialized, predominantly non-trend strategies, account for approximately 25% of the Altegris 40 Index. These managers may deploy fundamental investment approaches and discretionary judgment about market direction, or short-term systematic investing, or focus on individual sectors or markets.  These specialized approaches may display unique diversifying characteristics when blended with trend following managers in a managed futures portfolio.

In Q3, managers who specialize in commodity markets

were finally presented with trading opportunities driven by economic fundamentals.  I say “finally” because this sector has been hostage to macro forces over the last 12-24 months, and it was a relief for many of these specialized managers to see market prices for commodities respond to genuine supply and demand factors.  Wheat prices rallied sharply as markets digested the impact on global supply from Russian droughts and wildfires, while floods in Pakistan had a similar impact on the prices of sugar, rice and cotton.

Q4 has begun positively for most managed futures strategies.  Many of Q3’s prevailing trends have extended into October, although at any time there is no guarantee that favorable conditions will continue.  But one of the cornerstone benefits of managed futures investing is that there is typically a very wide set of opportunities that professional managers have the potential to participate in.  There are global futures markets tracking price moves in stock indices, interest rates, currencies and commodities. Managed futures can be long or short, depending on the trend or the manager’s view.  This opportunity set is, in my opinion, so much broader than a long position in stocks. Thus it’s really not surprising that managed futures investing has continued to exhibit a long-term historically uncorrelated relationship with many other asset classes, including equities.   

(Genworth Financial recently announced a deal to acquire Altegris Investments; see an explanation for why this will benefit advisors in an exclusive interview with Genworth Financial Wealth Management’s CEO Gurinder Ayuwalia.)

The views expressed by the author are his own, and do not constitute an opinion or analysis of Altegris Advisors, LLC or its affiliates. The risk of loss in trading futures can be substantial.  You can lose all or a substantial amount of your investment and should only invest risk capital. Past performance is not necessarily indicative of future results.