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A review of all sectors shows some clear themes across asset classes. Bonds are out of favor and US equities are preferred. International equities and bonds reflect repricing of rates and currencies while still showing lower global growth.

Key financial market trends show continuation as we enter December. Down trends in bonds and rates may show some weakening after the strong moves in November, but there are few signs of reversals. Dollar strengthening is linked to the bond moves based on expectation of increased US growth and Fed action. Energy markets show a strong uptrend on announced OPEC production cuts. The US equity rally post-election is slowing. This stock rally never occurred in global markets. There are limited trend opportunities in precious metals and slowing trends in base metals. Commodity markets are mixed based on large dispersion in supply and demand conditions.

A US equity rally after the election and a major bond sell-off highlighted the month for traditional assets. Many hedge fund strategies were able to exploit these moves and generated gains especially in fundamental value, market directional and relative value strategies. The big losers were fundamental growth and emerging markets. Global macro and CTA strategies also generated loses for the month.

A large sell-offs in bonds both domestically and around the world, a strong US equity move, and a strong dollar trend that changed perceptions on currencies, did not create an environment where managed futures were able to generate positive returns. I don’t want to be accused of hindsight bias, but a review of price trends in bonds and the dollar going into the election suggested that post-election moves, while extended, were not inconsistent with longer-term trends. Still, an early review suggests that there have been some major winners in this space who will end the year with strong positive gains. Careful CTA manager selection has meant the difference between success and failure in 2016.

For those who had a “safe” portfolio skewed to bonds before the election, it was a disaster month. For those who were stock-pickers in value and small cap, it was a dream market. The return differential between bonds (TLT) and value (IWN) was more than 20% in one month. Call it a “Trump Rally / Trump Bond Sell-off”, but the financial world changed beyond politics. This sound bite story may be getting old, but there is a lot going on in markets beyond being long stocks and short bonds.

CTA Intelligence reported the top 50 CTA’s as of September 2016 and provided some good graphics on the names and the changes over the last year. Taking a closer look at the data from the perspective of market structure and industrial organization provides some additional insights on the managed futures industry. We will focus the discussion on the top 50 managers because these are the ones that will receive the most interest from institutional investors. We can call this the relevant market.

“I made my fortune by selling too early”, a quote from Baron Rothschild used for an investment game by John Hussman. John Hussman has invented a game called “Baron Rothschild” as a teaching tool which is based on a simple process of drawing returns from a set of cards The sequence of cards can generate a performance record. Think of this as a form of Monet Carlo simulation from a return distribution. The player can call stop after any number of picks or he can continue to pull return cards to compound his performance.

There are fads and fashions in finance and business. Some statistical techniques come and go in and out of favor based on expectations of success and the realization that some tools just cannot solve certain problems. Data mining in now a hot topic in many areas of business, yet there are not clear definitions of what data mining means, what tools it represents, and how it can solve problems. Clearly, the low cost of computing and storage has made the collection of data much easier, but the problem is not with the data. The issue is how you extract the data “ore”, how it is processed, and what you do with it once it is modeled.

Being on both side of the table concerning the due diligence of managers, I can argue that there has been a significant improvement with the skill at conducting operational due diligence. Operational risks can be effectively identified and measured. There will be fund failures, but investors can do a good reasonable job of handicapping firm-specific risk. There are checklist and processes that can support the choice of managers. The operational due diligence has been effectively institutionalized.

Having the stomach for investing means that you are able to get over the behavioral biases that are based on emotions and fast thinking. It means being able to follow-through with an investment plan without emotions. Meir Statman, a finance professor who has focused on behavioral biases, states, “Deeply buried fears can keep us from taking risk – keeping us safe, perhaps but also robbing us of potential returns. A stronger tendency to regret past choices can keep us from repeating blunders, but also from repeating sound strategies that simply didn’t work out the first time.” from Spencer Jakab, Heads I Win, Tails I Win. Those who have regret have no stomach. Investors who can move beyond regret have the stomach for investing.

A close look at volatility across major asset classes over the last year shows that the BREXIT vote was a much bigger market event than the US presidential election. Looking at stock, bond, and currency volatility over 2016 suggests that the uncertainty post-election has not been as great as the BREXIT shock and already seems to be reversing.