We have noted the growing demand for short-term managed futures programs in this issue’s Managed Money feature and Trader Profile and now both short-term programs and allocators looking for the best short-term managers have a benchmark to measure the performance of short-term strategies.
Earlier this summer, futures commission merchant Newedge introduced its Short-Term Traders Index (STTI), which is designed to track the daily performance of a portfolio of short-term commodity trading advisors. “We developed this as a performance benchmark,” says Brian Walls, Newedge global head of alternative investments.
The criteria for inclusion in the index is for a program to have a less than 10-day average holding period, it must trade at least two market sectors from among equities, currencies, fixed income or commodities, it must be open to new investments and it must provide daily returns.
The core portfolio of the index, 90%, will include managers with at least $100 million under management and the other 10% will include managers with under $100 million. The core portfolio is equally weighted based on volatility and the smaller managers are equally weighted.
Currently there are 23 managers in the index but new mangers who meet the criteria will be added twice a year when the index is rebalanced. Walls says any manager meeting the criteria is eligible, though he added, “there are constraints to the number of managers we will add at any one time.” Walls says the $100 million level is important because institutional investors need to be able to invest in a program in the index for the index to be a viable benchmark.
Alternatives takes it on chin
The huge market reversals in July led to losses in the managed futures space and hedge funds didn’t fare much better. In fact the Hennessee Hedge Fund Index is on pace for its worst annual performance in its 21-year history.
The index was down 1.95% in July and is down 3.23% year to date. Charles Gradante, managing principal of Hennessee Group, blames the poor performance on sharp reversals in the financial, energies and metals sectors. “There is a lot of whipsawing,” Gradante says.
The index, which was launched in 1987, has had one negative year, 2002, when it was down 2.89%. That also was a strong year for managed futures, which is having another strong year even with the July reversals.
Gradante expects equities to continue its recovery and end the year basically flat, which in turn will be positive for hedge funds. He says the index will end up about 3% on the year.
