Managed Futures Indices Punch Into the Black as Fed Taper Appears Imminent

Major managed futures indexes punched into the black in November, with the Newedge CTA index up 1.62% following a 1.21% gain in October.

Markets currently trending to the upside include the Dax, S&P 500, Japanese 10 year Government Bond, British Pound and Five year note and Eurodollar.  Markets currently trending to the downside include gold, soybean oil, crude oil, corn and, to a lesser extent, coffee, cotton and sugar.   Potential relative value opportunities in diverging / converging markets include the Dax / CAC 40 index (or Hang Seng as a CAC substitute); LME Zinc / Aluminum and to a lesser extent soybean oil / meal.

With the potential for the US Federal Reserve to begin to cut back its quantitative easing program, managed futures industry participants are looking forward to more natural market behavior.  “2014 could be a strong year for managed futures as quantitative easing could end in the third quarter,” said Jay Feuerstein, Chief Investment Officer at 2100 Xenon, a firm that trades along the US yield curve.  “I think tapering could begin in December of 2013.  The every part of the recent employment number was very powerful.”

With over $300 million under his supervision Feuerstein, who helped develop the original futures contracts along the yield curve, said that as long as the curve remains steep it will facilitate job growth, which he expects.  “In 2014 I expect curve to steepen, the dollar to weaken and trend following to return as the economy can stand on its own two feet.”

Feuerstein projects that incoming Federal Reserve Chairman Janet Yellen will change the structure of quantitative easing from focus on the long end of the curve to the short end.  “Yellen is not the biggest fan of QE.  She might tell you the long end of the curve is not what matters most.”  While some yield curve prognosticators have predicted if QE were to end, the ten year note yield might jump to 4.75%, Feuerstein thinks this is too high.  “With inflation this low, I would expect an upside target of 3.60%.”

Feuerstein trading models are now generally benefited from the recent activity in the interest rate complex.  Their Managed Futures (2x) program earned an estimated +3.38 per cent in November; the Futures Alpha program, which has no trendfollowing, earned an estimated +2.68 per cent.

Overall Feuerstein is positive about the economic prospects in 2014.  “The political football that is the debt limit won’t be as intense.  Congress won’t shut down the government and will act more in concert with the interest of the nation as it sees that the government deficit is coming down.  We are on track to have the lowest government deficit since 2006.  Overall I look for the managed futures players that are remaining to do very well,” he predicted.

DISCLOSURE: These are the opinions of the author and may not have considered all risk factors. Nothing on this web site should be construed as an individual recommendation, talk to your independent advisor. The author and Opalesque may have relationships with those people they cover in the publication. Mr. Melin provides a full disclosure of his business relationships to regulators and certain eligible participants who engage him in consulting projects. Managed futures investing involves risk and there are no guarantees of safety or future performance being implied. Managed futures can be a risky investment. This web site and its content is subject to the terms of the web site. Risk Disclosure and terms of web site are available here: Performance information received on this site is provided by third parties and deemed reliable but there is no guarantee relative to same. Performance reporting sources and quality assurance techniques may include, but are not limited to: disclosure document, CTA self reporting, brokerage firm reporting, consultant reporting, spot checking other reporting databases; nonetheless no guarantee of accuracy or implication performance verification or auditing is being made by the publishers. The CTA Database is a project separately managed from

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