For those of you who weren’t rocking to LL Cool J in 1995, his ‘comeback’ song famously begins with the line, “Don’t Call it a Comeback.”
Well, we bet Emil Van Essen, the quirky (in a good way) Canadian who runs the self named Emil Van Essen managed futures shop here in Chicago, may have been humming that first line (if not the entire song) throughout the month of July. You see, Van Essen managed to post estimated returns of 6.00% in July, his best month since May of 2011, a year the program returned 33.99%. Since that blowout year, it has been more of a struggle for Emil and his team, however; with losses of -11.63% in 2012, -6.60% in 2013, and a weak first quarter of this year, down about -3.9% {past performance is not necessarily indicative of future results}.
Anyone falling for the trap of chasing performance likely wouldn’t be looking at Van Essen at all in 2014 given the past three years. Josh Brown at Reformed Broker just had a great piece on how fired managers actually outperform hired managers for institutional investors. But for those who like buying into drawdowns and looking for some value, Van Essen’s unique strategy is quite attractive after they put in a postive 2nd quarter followed by the impressive July numbers. In deference to the song… it is a bit of a “comeback.”
The Van Essen strategy takes long and short positions on the futures “curve”. What’s a price “curve”? Glad you asked. You see, futures markets are unique animals, quite different from their stock cousins. One unique item is that they have specific end dates and many different contracts of the same market; like Dec. ‘14 Crude Oil, Dec. ‘15 Crude Oil, and Dec. ‘16 Crude Oil and so forth. Those prices are either more expensive or cheaper than each other, creating a “curve” of prices; referred to as Backwardation and Contango depending on the shape.
Historically, crude oil has been the fund’s go to market so to speak, and the strategy profited from near term crude oil prices falling throughout the month as production levels rose domestically and abroad. But the bulk of gains in July was from trading lean hogs as near term hog prices fell much quicker than those in the back month, a classic relative value trade. Finally, coffee was another top performer as well with the further out months falling at a quicker pace. All in all it was a good month to be looking for (relative) value opportunities in commodities.
For more on the Emil Van Essen program as utilized by Attain’s Relative Value Fund, download our detailed report.
P.S — You might also enjoy the following video interview of Emil.