Red Rock – Commodity Long-Short Investing For HNW individualsVW Staff
Private Asset Management magazine recently featured Red Rock Capital in a special article on Commodity Long-Short investing for High Net Worth (HNW) individuals.
Red Rock Capital – Commodity Long-Short Investing For High Net Worth (HNW) individuals
Managed futures are among the favored vehicles for investment in commodities – but what type of exposure is best suited to a high-net-worth investor’s portfolio structure?
By Stephanie Bartup
Commodity index returns have, in general, been poor over the past year. In a low-inflation environment, the Bloomberg Commodity Index Total Return (BCOMTR:IND) has a one year return rate of -26.U3%. One of the most commonly invested in commodities, crude oil, sunk to a new low in January when it
fell below $30 a barrel for the first time since 2003.
Individuals Should Hold Commodity Futures As An Inflation Hedge, But Only When Inflation Exists
Jason Lejonvarn, Mellon Capital
In this volatile and uncertain market, one strategy has been gaining traction with affluent investors and their advisory teams. By using futures contracts to determine a position based on the anticipated profit, investors are seeing higher return potential. For example, LoCorr Funds’ four long/ short commodities managed futures products (LCSCX, LCSAX, LCSAX.LW, LCSIX) currently have one-year return rates of between 27.9% and 29.22%.
Managed futures are essentially a subset of hedge funds, a collection of liquid strategies focused on exchange-traded futures, options, and foreign exchange markets, and can take either a long (betting on the price increasing) or short (betting on a drop in price) position.
“Trading programs can take both long and short positions in as many as 400 globally diverse markets, spanning physical commodities, fixed income, equity indexes, and currencies,” says Tom Rollinger, managing partner, chief investment officer at Red Rock Capital.
He added that daily participants in these markets include hedgers, traders, and other investors. “These conditions allow most managed futures programs to accommodate large capacity and provide the opportunity to diversify across many different markets, sectors, and time horizons.”
Most managed futures strategies show very low correlation to the movement of the stock market, making them an ideal hedging mechanism for an investment portfolio in need of diversification. Additionally, studies have shown this type of program can increase the overall return of an investor’s portfolio while decreasing its volatility (Dr. John Lintner, Harvard University, 1983).
Commodities are one of the few liquid asset classes that have a high sensitivity to inflation; therefore, investors do not need a large percentage of assets in commodities to hedge inflation, experts suggest. “An allocation of up to 5% is usually adequate for individuals,” says Jason Lejonvarn, investment strategist at Mellon Capital, a BNY Mellon investment boutique. “Individuals should hold commodity futures as an inflation hedge but only when inflation exists. Otherwise individuals could wait for inflation and be very tactical or look for a solution that can be net short commodities during periods of low commodity returns and long during periods of inflation.”
See full PDF below.
We are pleased to share the following updates with you:
- Firm assets under management are approximately $89 million.
- Total Returns of our two programs, net of all fees, since their inception are:
- Systematic Global Macro: +235.82% (Sep 2003 inception)
- Commodity Long-Short: +75.58% (Sep 2013 inception)(Past performance not indicative of future performance.)
- aiHedge recently awarded Red Rock Capital:“Best Tactical Commodities Portfolio Manager – USA”
In the following table please find the updated monthly and 2016 YTD performance (est.) for both of our programs:
(Past performance not indicative of future performance.)
Red Rock Capital – Commodity Long-Short
March fact sheet
About The Strategy
Tangible / physical commodity futures markets are predictably inefficient. Supply & demand shocks are common and they regularly exhibit various degrees of disequilibrium as producers, consumers, and speculators attempt to maximize their gains and limit their risks. Our Commodity Long-Short strategy is designed to identify patterns of market behavior that signal an opportune time to initiate positions with the aim of capturing profitable, directional volatility in these markets as they try to find their true price. The patterns are not visible to the naked eye and can be counter-trend or with the trend. The average holding period of a trade is 9 days and the returns of the strategy exhibit very low correlation to stocks, bonds, HFs, or trend-following CTAs. Minimum account size is $500,000 and fees are 2% & 20%.
Outright long, short, or flat positions are initiated on a highly liquid and diversified portfolio of 28 exchange-traded commodity futures markets spanning the agricultural, metals, livestock, softs, and energy sectors.
This program could be a valuable addition to a CTA portfolio because it is so different. Across the Managed Futures industry, tens of billions of dollars are invested in trend followers that are highly correlated to one another, and this program has shown to be a great complement to those programs. In fact, its correlation to the SG Trend CTA Index (the top 10 largest trend following CTAs open for investment) is a very low 0.26.
Red Rock Capital – Systematic Global Macro
March fact sheet
The Systematic Global Macro Program is designed to capture the high-value payoff portion of globally trending markets by blending the benefits of both momentum and probability theory. The Program has three distinct aspects: Market Profiling, Alpha Generation, and Phase Discrimination. The Program is completely quantitative, systematic, and adaptable. Long and short positions are tactically implemented and managed on a globally diverse portfolio of liquid futures markets. It is Red Rock’s aim, through the disciplined application of their Systematic Global Macro Program, to produce as high as possible risk-adjusted returns for themselves and their investors – returns that are uncorrelated to the performance of major asset classes such as stocks, bonds, & real estate.
The Systematic Global Macro program has a 12+ year track record netting clients 10.11% annualized returns and is uncorrelated to stocks and bonds. A recent quantitative analysis once again demonstrated that it is among the top-ranked trend following programs in the entire CTA space going back to late 2003. This is especially impressive when considering our program has 50% exposure to actual commodity futures such as corn, wheat, sugar, energies, precious metals, etc. (i.e. non-financial futures) unlike many large trend following managers who cannot trade these markets with meaningful size positions.