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Do speculators drive prices away from commodity fundamentals? This is one of the core commodity futures markets questions. One approach to answering this question is through looking at the price dynamics, but the advantage of futures is that we have reporting of position information by specific traders groups. Trade flows can be divided into producers, money managers (speculators), swaps dealers, and indexers. The relative balance between these groups can tell us about the market structure, a dynamic agent-based analysis.

Morningstar star ratings – Do they really work or are they a dangerous tool? This is important to revisit given the increased number of hedge funds that now have ’40 Act fund structures that are ranked by Morningstar.

There has been an explosion of alternative measures and methods to access market betas and risk premiums, yet it is not always easy to explain what this added complexity should give investors.  We want to simplify the discussion to a simple trade-off – added beta “complexity” through either decomposing, diversifying, or managing the set of betas should reduce the range of return to risk.

Trend-following CTAs and managed futures has evolved over the years. Many of the largest firms today would not be recognizable from those who were the largest during the 1980s and 90s. Some of this change in leadership is due to business decisions, but it also has to do with the evolution of the investment process. CTAs have evolved with research trends in finance, the changing focus of overall money management, technological developments, and structural changes in markets.

Inflation is here. There is no doubt, but that number will be around 2%. The only question that is unclear is whether there will be overshoot beyond the 2% level. Clearly inflation in the Eurozone is still not near 2%, but all inflation placed bets seem to surround the target level that have set by central banks. Investors have to ask the simple question of whether the beyond 2% is realistic.

There has been a significant capital switch from mutual fund investing to ETFs, from active to passive investing. This has been a significant positive for many investors because there are many “active” managers who are closet indexers and active managers who do not show skill.

Should investors be worried about credit spread return expectations or expectations of credit default losses in the current environment? Before we answer the credit questions about the current environment, investors may need a framework for weighting the types of risks in the credit markets. This is the fundamental question concerning holding any credit exposure, and an exhaustive research using variance decomposition of a large dataset shows that you should be worried about both. See “What Drives the Cross‐Section of Credit Spreads?: A Variance Decomposition Approach”, by Yoshiio Nozawa in the October 2017 Journal of Finance.

Managed futures index returns were slightly negative for the month with the SocGen CTA index down 26 bps and the SocGen CTA mutual fund index down 62 bps. The BTOP 50 index gained 26 bps for the month. This compared favorably against many equity indices, but was less than the fixed income indices. Trend-following managers were not able to catch the early rotations from equities to bonds during the second half of the month.

Global equity index signals suggest short positions while bonds are showing stronger long trend signals. The repricing of risk usually is associated with movement from more risky to less risky assets. Short rates suggest more uncertainty on Fed making good on rate rise promises. Metals are signaling a growth slowdown. The general tenor is that trends in most liquid markets more likely.

Markets have seen a significant change in economic sentiment over the first quarter of 2018. Market views have moved from euphoria concerning tax cuts and global growth,  to the fear of a volatility shock, to a revised view of growth,  and finally to growth fears under the concern that a trade war is around the corner. Overall, major assets, both equities and fixed income were negative for the quarter. Large cap firms that engage in global trade were hurt in March while bonds rallied as the safe asset. US small cap equities did better given their focus on domestic growth. Emerging markets gained on the dollar decline and the continued belief that EM markets have room for independent growth.

Investors do not always use all the information that is available to them; however this is a not a unique problem to finance but an issue that runs the gamut for all consumer decisions. The explanations for the problem of information usage or non-usage has fallen into two major camps or models of behavior and described nicely in a recent Journal of Economic Perspective article, “Frictions or Mental Gaps: What’s Behind the Information We (Don’t) Use and When Do We Care?” by Benjamin Handel and Joshua Schwartzstein. We present their framework with our view on how the problem can be solved.

Most trend-follower will say that they are “non-predictive”.  While I think this is true in the sense they do not form forecasts or expectations, trend-following is also based on the prediction that the price direction through some set of price weighting from yesterdays and today will continue into tomorrow. Trend-followers do not try and forecast expected returns rather they extract signals from past data under the assumption that price moves will have memory of at least direction. These managers find trends across a large diverse set of markets and then invest long or short based on these trends. If the markets are moving higher, they are a buyers, and if price move lower they are sellers. Buy high under the assumption that prices will move higher and sell low under the view that prices will move lower.