• April 19, 2017
    managed futures, Return Expectations

    Our blog post from last week, “Deconstructing Managed Futures Returns”, discussed the drivers of recent negative performance of diversified trend-following strategies, while showing their long-term effectiveness as a tool to both dampen portfolio risk and generate attractive returns. The downside of strategies that produce strong long-term performance, but deviate from equity markets, is that many investors find it hard to maintain discipline in the face of drawdowns, especially when they occur as stocks move ever higher.

    The problem is universal for any strategy or asset class that is designed to have low or negative correlation to equity markets; they tend to behave differently from equity markets, which means they will often lose money or make very little during times of strong equity performance. Humans’ bias towards action leads to the much discussed “investor behavior gap” or the tendency of investors to sell an underperforming strategy and replace it with a better performing strategy at precisely the wrong time.

    Is there a solution to this problem?

  • April 12, 2017
    managed futures, Return Expectations

    Those familiar with 361 Capital know that our managed futures strategies fall into a particular niche referred to as counter trend, which makes our return patterns quite distinct from more traditional trend following approaches. Nonetheless, as we work closely with many of our clients on issues relating to asset allocation and portfolio construction, we are often asked for insight on the managed futures category more broadly, more so of late because over the last few years – 2016 in particular – trend followers have struggled a bit.   

    So with that in mind, we decided to dive into the trend following world and figure out what has been driving returns.

  • April 05, 2017
    Alternative Mutual Funds, Hedge Funds

    The hedge fund industry continues to battle an environment that is hostile to high fees, lock-ups, and a lack of transparency. Now, if performance were sufficiently compelling, we might have to defend our peers in the broader alternatives world, because we fully agree that there are certain strategies that don’t belong in a daily liquid vehicle. And it has been suggested by more than a few hedgies that investors can’t get what they offer in mutual fund form without giving up something. 

    But the good news for mutual fund investors is that lower fees, daily liquidity and high transparency haven’t come with any discernable performance disadvantage. As can be seen from the table below, in multiple alternative categories the mutual fund peer groups have stood up nicely to their hedge fund counterparts.

  • March 28, 2017
    Investor Behavior, Long/Short Equity

    According to a recent paper authored by Vanguard’s research group, U.S. investors have close to 80% of their equity exposure in U.S. stocks, even though the U.S. stock market accounts for only about 51% of the total market capitalization of global equities (data as of December 31, 2014). While there may be good reasons at times to have such a home country bias, and those reasons are explored in the paper, we question whether or not this is one of those times. In fact, by most measures, U.S. equities look expensive relative to their European and Asian counterparts, both developed and emerging, as can be seen in the following table.

  • March 21, 2017
    Diversification, Volatility

    Yesterday, the S&P 500 suffered its first decline in excess of 1% since October 11th. Volatility has essentially been non-existent since the election, with the VIX hovering around 12, well below its long term average of approximately 20. Investor complacency has been building, evinced in part by the record level of flows to ETFs in January and February, as those late to the party increasingly have been throwing money at the market so as not to be left further behind.

    So is recent performance indicating a crack in the market’s armor?