Tuesday, October 28, 2014
Thursday, October 23, 2014
We’ve done testing going back 100 years or so (so has AQR in their paper ) and I was delighted to see a new book out by the crew at ISAM (up a whopping 28% this year) that has a 800 year backtest! Looking forward to reading it.
If you want some background reading on Trendfollowing search the archives, lots and lots in there including some of the below:
Podcast interviews that are excellent
Bhansali paper on Trendfollowing through the Rate Cycle
On the Nature and Origins of Trendfollowing – Stig Ostgaard
Dual Momentum Investing – Antonacci
Following the Trend – Clenow
Trendfollowing Bible – Abraham
Global Investment Returns Yearbook – Dimson, Marsh, Staunton
Appendix in Smarter Investing in Any Economy – Michael Carr
Trendfollowing – Michael Covel
The Capitalism Distribution – LondBoardFunds
Posted by Bud Fox at 7:47 AM
Wednesday, October 08, 2014
Tuesday, October 07, 2014
Posted by Bud Fox at 9:55 AM
A lot has been made of the track records of Bill Gross and Dan Ivascyn managed funds since the sudden departure of Gross from PIMCO. Mainstream media has covered the aftermath in great detail, but explanations of the performance have gone relatively untouched. Was the performance of Bill Gross really that awful? Was it entirely attributable to a poor call on US Treasuries? Is the Ivascyn magic touch now about to change all of PIMCO’s bond funds? Let’s sort through the facts and establish some pragmatic views on the subjects.
1. Ivascyn knocked it out of the park
Make no mistake about it, the management of Dan Ivascyn’s funds the since the crisis has been nothing short of superb. The PIMCO Income Fund (PIMIX) is up an average of 12.8% over 5 years versus the category average of 7.2%, ranking it better than 99% of peers according to Morningstar. Fund assets grew from $300mil in 2008 to $6.5bil at the end of 2011, and now $38.6bil at the end of September 2014.
Ivascyn and co-PM Alfred Murata targeted beat up credit assets that would benefit from a reflating of the financial markets. As central banks moved interest rates to zero and removed government bonds from the system, investors were forced to incrementally move out the credit curve.
An example of something that PIMIX has owned and done extremely well on is Spanish Covered Bonds. This is one the larger holdings in PIMIX. As shown, in three years, the price has risen from ~50 cents on the dollar to ~120 as the Euro debt crisis calmed.
Arguably the largest source of returns for the PIMCO Income Fund has been from non-agency MBS. There’s been arguably no better place for outsized returns in fixed income than non-agency MBS since 2009. Ivascyn and team made shrewd bets that these assets would recover and they did.
All in all, Ivascyn’s bets have been credit related and have centered around risk premium compression in the junkiest areas of credit. He has not been without misses - as his PIMCO funds held large amounts of Brazilian entrepreneur Eike Batista’s bankrupt OGX, as well Mexican homebuilder Homex. The point is not that he got a few wrong, but that he bet big on a recovery in the weakest areas of the credit markets and has largely been correct. Gross himself recognized & apparently liked this opportunity set as he is the largest owner of the Ivascyn managed PIMCO Dynamic Income fund (I consider it a leveraged version of PIMIX) with over 1.6mil shares held.
2. Gross’ Total Return Fund was not comparable to Ivascyn’s Income Fund
The objective of the PIMCO Total Return Fund is to "maximize total return, consistent with preservation of capital and prudent investment management. The fund invests at least 65% of its assets in investment grade fixed income".
The objective of the PIMCO Income Fund is to "maximize current income and to seek for long-term capital appreciation…"
These objectives are not anything similar to each other. The Gross managed Total Return Fund by mandate must seek preservation capital and may only hold a maximum of 35% in non investment grade bonds. In contrast, the Income fund is seeking to maximize current income and long term capital appreciation. Gross was forced to hold a substantially larger amount of government bonds and lower yielding IG credit.
3. Even if he wanted to, the Total Return Fund was too large to buy the bonds that Ivascyn bought
Peaking at $293billion, the Total Return Fund is an absolute behemoth. Bottom line is that the types of bonds which had the most outsized returns (such as non-agency MBS) were not able to be purchased in great enough size to move the needle.
The size of the entire non-agency universe has fallen to under $750billion. After accounting for legacy holders, hedge funds, and banks, the universe to buy is very small. As an example, the large Maiden Lane auctions where the Government sold off amounts of non-agency MBS were only around $7bil if I recall correctly. If the Total Return Fund bought that whole thing it still would’ve been a very small allocation to the fund.
4. The performance of the Total Return Fund was largely based on duration calls
With a fund so large as Gross managed, the relatively performance of it came down to his call on duration. It’s been well documented that he was wrong about US rates a few years ago and that lack of duration hurt his relative performance. Regardless of QE or “the new normal”, his views on how much duration to take was the big determinant. He bet that rates would rise and inflation would as well (Gross funds were heavily long TIPS).
Yes, Gross and team made some mistakes but comparison to Ivascyn’s funds are misleading. They were playing in very different areas of the bond market and the size of Gross’ Total Return Fund were a big headwind. Astute readers will note that Ivascyn isn’t on the PM team for the Total Return fund & that’s probably a smart choice. Ironically, as Gundlach mentioned yesterday, the biggest mistake that Gross made might have been letting his flagship fund get too large.
Posted by Bud Fox at 6:19 AM
Sunday, October 05, 2014
Posted by Bud Fox at 7:40 AM
With the month of September and the third quarter now in the books, below is a look at the performance of various asset classes using key ETFs traded on US exchanges. It was a rough month for stocks, especially for smallcaps. The Russell 2,000 (IWM) finished the month down 6.19% and the quarter down 7.96%.
Six sectors finished the quarter lower, while four traded higher. Health Care and Technology were the winners of Q3, while Energy was the big loser.
Foreign markets didn't fare well in September either. The Brazil ETF (EWZ) was by far the worst with a decline of 19.09% for the month. Australia (EWA) fell the second most at -11.86%.
Commodities and fixed income fell as well in September. For the quarter, commodities took it on the chin, with declines of more than 10%.
About the only thing that did well in September was the US dollar index.
Posted by Bud Fox at 7:26 AM
Posted by Bud Fox at 7:21 AM
Short sellers have to pay a pretty hefty premium these days to bet against camera maker GoPro Inc.
GoPro’s stock has more than tripled from its trading debut in June and is the best-performing U.S.-listed initial public offering this year, according to Dealogic. The rally has made GoPro a ripe target for short sellers to bet on a drop from such elevated levels.
But to do that, the shorts need to pay a hefty price tag.
“GoPro is currently one of the most expensive stocks to borrow among all U.S. equities,” Andrew Laird, analyst at securities-financing tracker Markit, said in an email to MoneyBeat. Nearly all of the shares available for lending have been borrowed, he said, and the cost to borrow the stock has surged to among the highest levels since GoPro’s IPO in June.
“Currently investors are willing to pay close to 100% (annually) of the value in order to borrow shares,” Mr. Laird said. “This is extremely high by any standard and is a factor of both strong demand to short from the buyside and limited supply.”
Short sellers borrow shares to sell them in hopes of buying them back cheaper at a later date, aiming to profit from a price decline.
While the demand for shares to short is pushing against the available supply, the percentage of GoPro shares on loan — a proxy for short-selling activity — isn’t wildly outside the norm. As of Wednesday, it stood at about 2.5% of shares outstanding, according to Markit. That’s above the average short interest for the S&P 500 at about 2.2%.
GoPro makes wearable high-definition videorecorders that first appealed to surfers and cyclists seeking ways to record cool tricks before surging in popularity among the general public.
Shares are up about 250% from GoPro’s $24 IPO price. But trading in the stock also has been erratic. The stock fell as much as 14% on Thursday after the company said its founder, Chief Executive Nicholas Woodman, and his wife, Jill Woodman, gave 5.8 million Class A shares worth about $500 million to a charitable foundation. The couple had been restricted from selling the shares until six months after the June IPO, but sidestepped a so-called lockup agreement and transferred the stock.
Shares rose about 11% on Sept. 29 after the company unveiled a slew of new cameras. The stock also fell 15% on Aug. 1 after the company reported earnings.
GoPro shares rose 3.1% to $88.14 Friday afternoon.
Posted by Bud Fox at 7:11 AM