Jean Mrha Beach is not your normal emerging commodity trading advisor (CTA). Although her proprietary trading record only goes back to April 2010 and CTA Tlaloc Capital only became registered in June, Beach has spent the last two decades trading and hedging in commodity markets. She was head trader of Enron’s daily swap and options book for natural gas in the late 1990s before heading up Enron’s broadband and upstream products units. Most recently Beach ran trading and risk management in grains, meats and energy for Tyson Foods.
"I like the fact that I am setting up my own firm with my own culture and can have more control over my own destiny," she says.
While going from heading up a trading unit for one of the largest meat producers to running a two-person emerging CTA seems like a huge transition, Beach says there are a lot of similarities.
"What I always have done in my career is build businesses. At Enron I built the gas daily swap and options book [and] led the infrastructure efforts around Enron broadband services. At Tyson there was no trading or risk management department [before I arrived]," she says. "I always have been attracted to those challenges that give me an opportunity to build something out of nothing."
The Tlaloc program takes a short-term fundamental approach to trading that focuses on information flows. The discretionary program trades corn, but Beach plans on expanding to soybeans and wheat. The program earned 34.83% in 2010 trading proprietary capital and an allocation from her father-in-law, and is up 13.68% in 2011 through August in what has been a volatile corn market.
The program is fundamental and discretionary but looks at technicals and money flows. "You have to be cognizant of the money flows because they can create distortions or opportunities in the market. Also, if you have a position on opposite of what the money flows are going to do, you are going to get run over," she says.
Beach’s experience at Enron and Tyson helped her understand factors affecting the market. "Being inside a significant protein processor like Tyson Foods, you get a perspective of how commercial end-users think," she says. "At Enron, what you did, you [did] to make money and what it taught you is how to get information out of the market and how to trade off of that information into hopefully a profitable position."
Her background also gave her the perspective of different types of market participants. "Working at Enron, the P/L that was generated was tied to your book’s performance and that taught trade discipline, focus on fundamentals and the use of risk management. Inside of the corporate umbrella, all positions, whether opportunistic or tied to the business units or products, contributed to the overall margin capabilities of that business segment."
Now she only takes the trades with the best opportunities. "Like my work at Enron, you only had a position in the markets if you felt there was an opportunity to earn significant rewards relative to the risk, whereas in the trading and risk management function you always had a position just by being in that particular business, whether or not you chose to hedge that position."
Another unique element of Tlaloc is that Beach’s partner is her husband. "It gives me an opportunity to focus on the markets, the fundamentals, trading strategies [and] interacting with potential investors. A lot of the interactions from a compliance perspective — legal, IT, outsource consultants — he handles, so that takes a lot off of my plate."
Beach’s approach is dynamic and allows her to identify opportunities that a model could not. "There is a demand out there for discretionary fundamental traders because the majority of the space are algorithmic or systematic, and people are looking for some diversification. [My style] is very disciplined, short–term focused and a lot of times contrary to momentum- or technical-based strategies."
However, discretionary traders must focus more on risk management. "It is important as a discretionary trader to define your sandbox. I have done things that from a trade perspective I didn’t agree with but were prudent," Beach says.
For example, Beach correctly predicted the bearish USDA crop report in June but reduced a short position by half prior to the report because she knew it would create a volatile move. "When you are a discretionary trader, it is about building that confidence that you can generate returns and preserve capital."
While Beach acknowledges new fundamental factors and weighs them, she concentrates on basic supply and demand. "The perception is that the falling dollar is going to be beneficial for the commodities sector, but that is not always the case," she says. "You have to have the underlying supply/demand dynamic to support prices."
As for the name, Beach always has been interested in mythology and Tlaloc was an Aztec god of rain, fertility and water. While there are a lot of references in the trading world to Greek and Roman gods like Ceres, Tlaloc, like its founder, is unique.