Doug Carper, president of DEC Capital Inc, has had some volatile swings in performance since launching his discretionary CTA in 1994. But 2006 proved to be a perfect year for his style as his Futures Fund Ltd. returned 154.59%. His lower-leveraged managed account program, Commodity Alternatives, earned 44.42%.
“We had several key trades that propelled our performance. First and foremost we were able to take advantage of significant changes in the price relationships in various classes of wheat,” Carper says. For example, in the first quarter DEC accumulated a long position in the hard red Kansas City Board of Trade wheat vs. Chicago Board of Trade wheat. The spread widened out to more than $1 per bushel. DEC was able to capture the movement of the spread while avoiding the volatility of the individual contracts. “That was a big winner for us. We also were involved early on in recognizing the huge surge of demand for corn coming from the ethanol front and positioned ourselves to catch a couple of those early moves,” Carper says. He was also able to catch the last leg up in the corn move in the fourth quarter.
While spreads provide opportunities for profit, they aren’t necessarily hedged positions. That was never as true as it was with wheat this fall. “We were very fortunate to avoid a catastrophic spread disruption that took place in wheat in October. A lot of people got hurt badly by that,” Carper says. His strategy is fundamentally-based, so he was not one of the traders bear-spreading wheat to take advantage of index fund rolls. The disruption, however, did present an opportunity for DEC. “Subsequent to that we were able to capitalize on the [move] in the nearby contract months.”
Carper has been trading the agricultural markets with this approach for 30 years and sees greater opportunity than ever thanks to biofuel demand and the onset of electronic trading.
“This is going to expand volume. Now a lot of people are willing to trade corn because they can set the symbol next to the bond or stock index futures that they [trade] electronically,” Carper says. “It also makes cross-exchange grain spreads easier to do. Anything that provides liquidity makes certain kinds of trades more plausible.”
Carper says increased liquidity is creating opportunities. “Today when somebody wants to buy December 2008 or December 2009 corn you could bid on it and the rest of the world can offer it. That is good for the markets,” Carper says. “Now all of a sudden we have a lot more opportunity to look at multiple-year strategies and this is something that didn’t really exist in the past.”
While all these factors are increasing interest in his program, Carper is reluctant to grow too fast, trying to avoid hot money. “We always felt that the smaller more nimble-sized CTA has a greater opportunity to post bigger returns. We have had a couple of warts that we have had to live with because of our volatility, [but] people now have a better understanding of what we do and we have been highly discriminatory. A lot of the people out there allocating assets have hair- trigger tendencies.”
Carper’s big advantage is his 30 years of fundamental trading experience. “Our focus has always been on the big macro. We try and catch those big broad general themes. That is why people hire us; we bring something to the party as it relates to information in fundamental analysis,” he says.
