I'm trying to understand sources of return (and losses) in these things before I consider taking the plunge. So a question about leverage in managed futures and short-term interest rates...
I'd gotten my head around how NTSX (a 90 equity/60 treasury ETF) works, and specifically that the leveraged part of it (the treasuries) has financing costs equivalent to short-term interest rates. So, the total performance is basically 90% S&P 500 + 60% treasuries - 50% cash (and at 50% rather than 60% because it holds 10% in cash). And so high short-term rates represent a meaningful performance headwind for that type of fund.
But after a lot more reading, I think that it doesn't work that way for Managed Futures. NTSX is all long, but Managed Futures are a mix of long and short. And the part of cost of carry which is short-term interest rates is a performance drag for long positions, but a performance win for short positions. Do I have that right?
If that's right, then (for example) KMLM is currently a bit over 200% gross leveraged if I add up all the exposures (as of August 16.). But if I add long and subtract short, I only get a net leverage of 31.62% (long-short), so with that exposure, it's got a ~32% cash drag from futures exposure (not 200%), and gets all that back from the cash and T-bills on hand. (Not that "performs somewhat worse than cash in a low-volatility market" is a selling point, but at least it's not a headwind.)
And obviously these numbers change over time as it moves between overall long and overall short depending on current trends - but is there any analysis of the average net exposure for any of these ETFs? Does it average out to 0, or is it typically net long?
Thanks in advance for any corrections - I'm coming from a place of ignorance, though CME courses (https://www.cmegroup.com/education/courses.html) have been really helpful.
I'd gotten my head around how NTSX (a 90 equity/60 treasury ETF) works, and specifically that the leveraged part of it (the treasuries) has financing costs equivalent to short-term interest rates. So, the total performance is basically 90% S&P 500 + 60% treasuries - 50% cash (and at 50% rather than 60% because it holds 10% in cash). And so high short-term rates represent a meaningful performance headwind for that type of fund.
But after a lot more reading, I think that it doesn't work that way for Managed Futures. NTSX is all long, but Managed Futures are a mix of long and short. And the part of cost of carry which is short-term interest rates is a performance drag for long positions, but a performance win for short positions. Do I have that right?
If that's right, then (for example) KMLM is currently a bit over 200% gross leveraged if I add up all the exposures (as of August 16.). But if I add long and subtract short, I only get a net leverage of 31.62% (long-short), so with that exposure, it's got a ~32% cash drag from futures exposure (not 200%), and gets all that back from the cash and T-bills on hand. (Not that "performs somewhat worse than cash in a low-volatility market" is a selling point, but at least it's not a headwind.)
And obviously these numbers change over time as it moves between overall long and overall short depending on current trends - but is there any analysis of the average net exposure for any of these ETFs? Does it average out to 0, or is it typically net long?
Thanks in advance for any corrections - I'm coming from a place of ignorance, though CME courses (https://www.cmegroup.com/education/courses.html) have been really helpful.
Statistics: Posted by brightlightstonight — Sun Aug 18, 2024 1:23 pm — Replies 20 — Views 3092