COMPARING MANAGED FUTURES INDICES

November 22, 2010

We were putting a blog post together today pointing out how it was interesting that the BarclayHedge CTA index was only up 4.17% for the year while the Dow
Jones/Credit Suisse Managed Futures Index was up 10.99% (if you haven’t visited our Managed Futures Blog yet, click here), and while getting into the guts of wh
that was the case… decided a comparison of the various managed futures/CTA indices out there was a little too long for a blog post, but just right for a short and
sweet holiday week newsletter (we’re observing abbreviated hours this week in the US for the Thanksgiving holiday)

So without further ado, our efforts at breaking down the differences between the three mainstream managed futures/CTA indexes. (please excuse our alternating
use of indices and indexes…we’re trying out grammatical diversification). Just three…you ask? While there are more than a dozen different Managed Futures/CTA
indices out there of varying popularity, we have chosen to focus on the three most accessible to the public that we frequently use and reference in our research:

listed alphabetically

1. BarclayHedge CTA Index - (website)

2. Dow Jones/Credit Suisse Managed Futures Index (website)

3. Newedge CTA Index - (website)

Others of note would include the CISDM index which the CME likes to show trouncing US and Int’l stocks since its inception (see here), Stark, and Lipper/TASS.

So how do these three stack up against each other in terms of number of CTAs inside the index, reporting frequency, limitations on inclusion, and so on? The
following table breaks down the major characteristics of each:

A few things stand out to us in the comparison table. The first is the BarclayHedge CTA Index being comprised of many, many times more programs than the other
two (533 to 33, to 20). This is a direct result of the differing ‘inclusion limits’ between the three – with the BarclayHedge index having no minimum assets under
management (AUM) requirement – juts a time limit, while the Dow Jones/Credit Suisse index requires at least $50 million and the Newedge index uses a formula
currently equal to a minimum AUM for inclusion of a whopping $800 million (thus the lowest #of CTAs in the index). The need for audited financials (DJ/CS) and
daily reporting (Newedge) further cull the lists of CTAs available for inclusion for the latter two indices.

The second is the differences between the start date and backfill date for the BarclayHedge CTA Index and Dow Jones/Credit Suisse Managed Futures Index.
There is much written about the various biases inherent in index data and calculation methodology, and one of those biases is referred to as ‘instant history’. With
years and 5 years; respectively, between the start of their index methodology, and the start of their indexes track record – BarclayHedge and Dow Jones/Credit
Suisse created 7 and 5 years of this ‘instant history’. Newedge deserves a nod for avoiding this bias and starting their track record at the same time as they started
doing their calculations.

One thing not in our table above that is important to note: all three indices confirmed that they do not backfill any data when new managers enter the index. This
means the return you see for any of the indices in Jan. 2008, for example, will always be the return for Jan. 2008 – no matter what programs are added to or
removed from the index. This is often a point of confusion for those worried about survivorship bias (are the past returns amended when a program stops reporting
and gets knocked out of the index?).

Another interesting difference between the three indices is that the Dow Jones/Credit Suisse Managed Futures Index calculating returns on an asset weighted basi
versus equally weighted. This means the returns of the larger programs being tracked by the Dow Jones/Credit Suisse will impact the returns more so than smaller
programs (in a proportion equal to their relative size to each other). This index takes on a sort of large cap feel because of that in our opinion, representing the
performance of the very largest managed futures programs.

Finally, two unique items are: 1. Newedge reporting performance of the index on a daily basis (now we know why they require daily reporting to be included in the
index) and 2. BarclayHedge not disclosing the constituents of its index (so much for checking their math).

Performance:

Past Performance is Not Necessarily Indicative of Future Results

How about performance? We mentioned that the DJ/CS index was doing markedly better so far in 2010, but the three are actually much closer on average, as
evidence by the 3yr return numbers in the table above. It is also worth noting that the Barclay Avg Annualized return number above (12% versus 7% for the other
two) is more a result of the 1980 to 1994 period being one of oversized performance for managed futures when the other two indices were not in operation nor
calculating results.

Just how similar is the performance of the three indices. We ran a correlation analysis and found that they are very correlated, with an average correlation of 0.90.
This can also be seen on the VAMI chart showing the growth of 1,000 above; but we’ll list the correlation coefficients for the statistically minded.

Conclusion:
So why is the Dow Jones/Credit Suisse Managed Futures index outpacing the BarclayHedge CTA Index nearly 3 to 1 this year. Because larger CTAs have
generally outperformed smaller ones so far this year, with the largest of the large also outperforming (thus the difference between the DJ/CS and Newedge CTA
Indices).

What does it matter to the average managed futures investor…. Nothing really. If the three indices were completely different and not very correlated to each other,
we would worry that managed futures is not truly an asset class (a stance quietly taken by some in the industry). And that would be worrisome because there would
be no compass with which to navigate…. no benchmark with which to compare the performance of the programs investors put their money into.

While managed futures don’t lend themselves to benchmark analysis as well as other asset classes (see our past newsletters on ‘the problem with Alpha, it lacks
Beta’ and Benchmark Analysis); there is still some comfort in knowing the drawdown you may be in is being matched by the major managed futures indices. And
seeing indices with different construction methods being highly correlated tells us that the managed futures indices are performing as a benchmark at least, if not a
full blown asset class.

Walter Gallwas

IMPORTANT RISK DISCLOSURE

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Feature | Week in Review |

Week in Review : Late week market stabilization stems bleeding for multi-market
programs
Heightened uncertainties regarding the European sovereign debt issues and signs from China that they are ready to institute steps to put the brakes on economic
growth made for a volatile week in several sectors of Commodity and Stock Index futures. The week started with problems with debt issues in Ireland and rumors
of stability in other countries in Europe, but as the week neared the end it seemed an aid agreement was all but assured by the EU. Chinese news also garnered th
main headline as governmental meetings targeting inflation worries outlined several steps they were ready to institute to cool spiraling commodity prices.
Displeasure of the QEII continued from members of the newly voted in Republican Congress as well, which led to ideas the program could be scaled down in the
future. The week also had bright spots with more M&A news, the IPO of GM and friendly U.S. economic data.

The food sector was again the recipient of the changing landscape in China and the possibility of declining demand from Europe’s woes. Cotton -8.76% led the pric
instability followed by Soybeans -5.33%, Wheat -3.71%, OJ -2.79%, Corn -2.51% and Sugar-0.23%. Coffee +4.69%, Cocoa +3.33% Live Cattle+3.26% and Lean
Hogs +3.06% avoided the assault with livestock the beneficiary of lower inputs from grain price depreciation.

Activity in the Energy complex remained unnerved from inflation fighting news out of China and a better gasoline supply situation in the Northeast U.S. corridor.
Crude Oil -3.94% led the complex lower followed by Heating Oil -3.73% and RBOB Gasoline -1.76%. Natural Gas +8.59% was supported by extended weather
forecasts calling for below normal temps into mid-December for a vast majority of the U.S. Midwest.

Metals ended in a mixed state as the Chinese news and worries about European debt issues left investors seeking return in some metals while shedding risk in
others. Silver +4.77% and Palladium +4.46% were in the spotlight with Copper -1.54%, Gold -0.97% and Platinum -0.80% losing some luster.

Market participants in Currency futures continued to adjust risk tolerance as worries about sovereign debt problems in Europe and Chinese plans to wrangle
inflation played key parts rolls in the changing psychology. Japanese Yen -1.27% led the decline followed by the Swiss Franc -1.14%, British Pound -0.92% and
Euro -0.13%. The U.S. Dollar Index +0.46% was the main beneficiary of the changing tide.

Price activity for interest rate futures saw U.S. 30-Year Treasury Bonds -0.18% and 10-Year Treasury Notes -0.91% as investors continue to rebalance ahead of
further QEII operations.

Stock Index futures ended mixed as the changing tide of news events kept participants on edge, although M&A activity and the GM IPO offering did aid in a late
week recovery from one month lows. Risk tolerance aided the smaller cap price guidance with stronger appreciation seen in Mid-Cap 400 futures +0.83% and
Russell 2000 futures +0.75%. S&P 500 futures +0.23% led the larger cap indices with NASDAQ futures -0.01% and Dow futures -1.24% playing the laggard role.

Managed Futures
Market conditions were slightly more favorable to multi-market traders last week as the new General Motors IPO pushed both stocks and commodities higher at the
end of the week to stop the bleeding. The rally came as a welcome relief for most multi-market traders, many of whom had suffered their largest losses in 3 month
through the middle of last week. Despite the rally, nearly every multi-market program we track remains in the red this month. Although, it should be noted that most
of the losses are give backs of open trade profits from markets that have been rallying for weeks now.

Thus far the lone program in the black for the month is Futures Truth MS4 at +0.33%, but there are a few programs near breakeven including Mesirow Financial
Commoidities Low Volatility -0.03%, Sequential Capital Management -0.04%, Dighton Capital Limited Aggressive Futures Trading -0.08%, Robinson-Langley
Capital -0.17%, Mesirow Financial Commodities Absolute Return -0.22%, DMH -0.31%, and APA Strategic Diversification -0.34%.

Programs deeper in the red include Futures Truth SAM 101 -0.95%, Quantum Leap Capital -1.34%, APA Modified -1.38%, Integrated Managed Futures Global
Concentrated -1.39%, Accela Capital Management Global Diversified -1.95%, GT Capital -2.15%, Covenant Capital Aggressive -2.42%, Auctos Capital
Management -2.80%, 2100 Xenon Managed Futures (2X) -1.80%, Hoffman Asset Management -3.60%, Applied Capital Systems -3.60%, Clarke Capital Worldwid
-3.93%, Clarke Capital Global Magnum -5.32%, Dominion Capital Sapphire -5.63%, and Clarke Capital Global Basic -10.95%.

Short term index traders are mixed with Paskewitz Asset Management Contrarian 3X St. Index +0.02% up slightly, while Roe Capital Management Jefferson -0.34%
and Roe Capital Management -1.07% down slightly.

In currency trading P/E Standard is down -0.02%.

Option trading manager results have remained mixed for the month as diversified managers look to break their 2-3 month losing streak. Despite the volatility in the
stock index markets over the past week, the top performer thus far has been Clarity Capital who is ahead an estimated +3.65% taking the program on to new equity
highs. Clarity trades exclusively on the S&P 500 options by employing butterfly option spreads looking for the market to remain in a defined range for the duration o
their trade.

Other option traders who are ahead for the month include White River Group +2.86%, Liberty Funds Group +1.96%, HB Capital +1.79%, and FCI OSS +1.77%.
Options managers in the red include Cervino Diversified -0.11%, Cervino Diversified 2x -0.12%, Crescent Bay BVP -0.40%, Crescent Bay PSI -0.67%, FCI CPP -
1.60%, ACE SIPC -2.14%, ACE DCP -18.48%.

Specialty market manager performance has also been mixed thus far with Cervino Gold Covered Call program leading the way +0.80%, followed by AFB Forty
Eighter Gold +0.47%, Oak Investment Group+0.34%, and NDX Shadrach +0.01%. Elsewhere specialty market managers down for the month include: NDX
Abednego -0.08%, 2100 Xenon Fixed Income -1.08%, Emil Van Essen Low Minimum Spread Program -2.83%, and Rosetta -8.54%.

Trading Systems

The woes continued for day trading systems last week with many struggling to break through and be profitable. Swing systems also struggled though there were
some positive signs with a few systems which had been struggling the past few weeks, taking steps in the right direction.

The best performance on the day trading side belongs to Bounce EMD. Bounce EMD made one trade last week and it was on Thursday when the equity markets
rallied to start the day and then ranged for the majority of the day. Towards the end of the day the equity markets started to give away their gains but bounced back
up about 20 minutes before the close. That bounce back up helped Bounce EMD be profitable or else it might have finished break even for the day. For the week
Bounce EMD finished up $345.00.

Unfortunately, there were more systems that finished with a loss last week than with a gain. Compass made one trade last week and it was on Tuesday. Compass
got short in the eMini S&P market just after the market had sold off nearly 14 points. Unfortunately for Compass the equity markets lost some steam after that and
ranged for the rest of the day causing Compass to go up and down all day and finally lose money at the close. Compass ES lost -$80.00 for the week and Compas
SP lost -$225.00. Other negative results included Waugh ERL at -$180.00, Upper Hand ES at -$285.00, and PSI! ERL at -$540.00.

Although things weren’t prettier on the swing system side, there were a few bright spots. BAM 90 Single Contract bounced back from a rough performance two
weeks ago, to finish up $2,610.00. Bam 90 Single entered the week long from the previous week and reversed short early on Monday. By the open on Tuesday, the
eMini S&P 500 market had dropped nearly 8 points and Bam 90 Single benefited greatly and took a profit of $1,295.00 and reversed long at the same price. Once
again the after hours action benefited Bam 90 Single, from the close on Wednesday to the open on Thursday the market had jumped 11 points and this time Bam
90 Single held on through Thursday. Bam 90 Single took profit and reversed near the high on Friday. Other positive results included Bounce ERL Swing at $90.00
and MoneyBeans S which had struggled to put together a nice big result for November until last week when it gained $1,982.50.

On the other side of the fence, Strategic continued to struggle to trade in the current market environment. Things weren’t all bad however, on Monday Strategic got
long and got hurt by the overnight fall in the market. However on Wednesday Strategic got long and ended its streak of losers and took profit on Friday near the
close. For the week Strategic ES was down -$497.50 and Strategic SP was down -$2,325.00. Other negative results included Waugh CTO ERL at -$700.00, Bam
90 ES at -$712.50, Polaris ES at -$1,017.50, and Bam 90 M Squared ES at -$1,395.00.

IMPORTANT RISK DISCLOSURE

Futures based investments are often complex and can carry the risk of substantial losses. They are intended for sophisticated investors and are not suitable for
everyone. The ability to withstand losses and to adhere to a particular trading program in spite of trading losses are material points which can adversely affect
investor returns.

Past performance is not necessarily indicative of future results. The performance data for the various Commodity Trading Advisor ("CTA") and Managed Forex
programs listed above are compiled from various sources, including Barclay Hedge, Attain Capital Management, LLC's ("Attain") own estimates of performance
based on account managed by advisors on its books, and reports directly from the advisors. These performance figures should not be relied on independent of the
individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes
proprietary results, and other important footnotes on the advisor's track record.

The dollar based performance data for the various trading systems listed above represent the actual profits and losses achieved on a single contract basis in client
accounts, and are inclusive of a $50 per round turn commission ($30 per e-mini contracts). Except where noted, the gains/losses are for closed out trades. The
actual percentage gains/losses experienced by investors will vary depending on many factors, including, but not limited to: starting account balances, market
behavior, the duration and extent of investor's participation (whether or not all signals are taken) in the specified system and money management techniques.
Because of this, actual percentage gains/losses experienced by investors may be materially different than the percentage gains/losses as presented on this
website.
Please read carefully the CFTC required disclaimer regarding hypothetical results below.

HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION
IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN; IN FACT, THERE ARE
FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED
BY ANY PARTICULAR TRADING PROGRAM. ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY
PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO
HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK OF ACTUAL TRADING. FOR EXAMPLE, THE
ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS
WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN
GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION
OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL WHICH CAN ADVERSELY AFFECT TRADING RESULTS.

Feature | Week in Review |

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