WEST PALM BEACH, November 26, 2011–Alan Snyder is someone we should all listen to. Not only because he is a successful money manager and founder of Shinneckock Partners, but because he’s really interesting. Despite his impressive resume and background – Mr. Snyder is a graduate of Georgetown University and Harvard Business School, where he was a Baker Scholar – he has the gift of sharing wisdom with even the least economic-savvy of us.
Mr. Snyder is an advocate of managed futures, which he strongly believes is the best way to invest to benefit his clients. He recently told The Wall Street Transcript, “The belief in futures stemmed from having been brainwashed when young and impressionable while getting an MBA at Harvard Business School. Harvard was one of the earliest converts to the belief that futures can lower volatility and enhance returns in a diversified investment portfolio. After years of seeing these effects actually work in our fund, we decided 18 years ago to establish a managed futures fund of funds as a standalone effort.”
So what are managed futures? Investopedia has a great introduction, here. Simplistically, “futures” refers to where investors believe the stock is going to go. If you think the price is going to go down, you “short” the stock. If you think it is going to go up, you go “long.” Managed futures is futures trading by professional commodity trading advisors. Unlike hedge fund manager or other “alternative” investments, CTA’s are carefully monitored, and must pass extensive background checks. Managed futures can go either long or short, and trade in a variety of areas. As Investopedia says, “In the past several years, money invested in managed futures has more than doubled and is estimated to continue to grow in the coming years if hedge fund returns flatten and stocks underperform.”
In this incredibly capricious market, Mr. Snyder aims to minimize volatility. He does this through utilizing some very important tenants that guide his investments. At Shinnecock, these principals are:
- Protect capital.
- Be flexible.
- Seek steady gains to compound returns and facilitate entry and exit timing.
- Generate returns over time and varying events.
- Employ super diversification.
- Be wary of highly leveraged strategies.
- Run from “guaranteed” hedges.
- Understand that mean reversion is normative but balance risk against secular shifts.
- Market mispricings, imperfections and opportunistic anomalies disappear over time. Tactical strategies may be transitory.
- Don’t short change the due diligence process.
So what should investors do now, considering the current economy? Mr. Snyder says,
“Hunkered down amidst the turmoil” best describes the prudent strategy for these markets. With broadly disparate views, markets have see-sawed wildly intraday, intra-month and between months. Amazingly, each of these comments applies to almost every market.
Non-correlated investments with hedged positions can provide reasonable returns albeit less than in the past, plus that vital ingredient: peace of mind. With interest rates near zero, stagflation a non-trivial risk, uncertain economies and political gridlock, only speculative investors will bet on a single direction. Even high grade bonds, which have performed well in recent years, have asymmetrical and negative risks going forward, unless held until maturity. In short, “super-diversification” may just be the reliable turtle that will win the race through steady compounding of modest returns, until the future is clearer after U.S. elections, European action and economic stabilization.
The most important point is that even in this wildly fickle economy, there are smart places to invest. If you would like to learn more about managed futures, you can contact the Shinnecock Team at 424.248.1800 or visit their web site at http://shinnecock.com/index.html?page=home. You can also call Mr. Snyder at the same number, for some truly fascinating conversation and insights.
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