2015 has come to an end, with the strategy finishing up 3.29% for the year. This is the seventhconsecutive positive year for the strategy. In a rather tumultuous year for the global markets, we were able to navigate through the abnormalities and produce a positive year. For reference, the image below displays the 2015 returns across different markets:
As you can see, our strategies returns are favorable when compared to the managed futures space and the overall market place. In our opinion, this demonstrates the strategies ability to manage risk and adjust to the markets. As we mentioned in November, we had a huge deviation in one of our hog fly trades, which finally ended well and we were able to cover it at the beginning of December with a minimal loss. Also in December, we began the implementation of live cattle trades to the strategy. This market had a rather strong bounce, moving more than $20 (15%) in just a few days. This resulted negatively for the overall strategy, but as we continue to mention, the addition was a long-term play
Looking forward, we have strong expectations for 2016. With crude oil at the lowest level in 10 years, we see opportunities to make money in this market. We are currently setting up different futures trades on crude oil focusing on the forward curve, where we hope to benefit from the strong contango.
For Grains 2015 was a strong “el Niño” season, which presents a large possibility that 2016 will be an “La Niña”. If so, this can negatively affect the crops during the summer period and we are putting together a group of trades to benefit.
In the meat market, we expect volatility in the live cattle markets, with a price increase in the Q2 due the lower than normal Cattle-on-feeds in December. This will make us reduce our bear spread position at the end of January and we will set up new trades to benefit from a price increase. In the hog market we expect a normal season year, the production and also the demand seems to be normal. We are starting our summer trades in June, July and August hogs.
The Eurodollar curve is flat, and appears to be flattening out even. Here the problem comes from the expectation of the market of the rate hike. In December we saw a hike for 0.25 bps, and the Fed was telling us then they will rise 3-4 more time. But as we look now to the GE market we can see that is expecting just 1, 40% or none 33.9% rate hike in 2016. See image below:
This made the Eurodollar forward curve flatten. We have flys and spreads on the long end of the curve 2017+ and this situation is not the best, unfortunately we will need more time to cover them at our target price. But in this king of strategies the only way to make money is to be patient.
As always if you have any question please do not hesitate to contact us.
Thank you for your trust.
— Gregory Placsintar
— Miguel Sanz Castello