MLM Symmetry™ - Quarterly Commentary
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December 2015

The MLM Symmetry Fund LP returned 7.24% in 2015, taking the return since inception in September 2014 to 17.4%. The fund performed well in both the Investment Risk and Price Risk Portfolios, which had close to a zero correlation during the period, which is our expectation over the medium to long term. This compares to the MSCI World total return of -2.59%, the Barclays Aggregate Bond Index total return of -6.83%, and a blended 60/40 return of -4.09%. As this is the first of what will be quarterly notes going forward, we will review the investing philosophy first followed by the outlook as we see it.

Obviousness alert! – getting the asset class betas right is the most important first step in building a portfolio. Once those decisions are made, adding alpha is an important secondary objective. The Symmetry portfolio is built along the same lines of how we see businesses operating in the real world - raising capital to fund growth through equity and credit markets, while managing the operational price risks that impact the running of the business as best they can. Both of these create risk premiums; markets exist to transfer them to investors. Symmetry balances them. To us these two premiums are complementary in a portfolio, but need to be accessed in different ways. The Investment Risk side of our portfolio funds economic activity by investing in equity and credit securities from the long side, directing capital to those who seek to expand and transfer capital risk. The Price Risk side takes on exogenous input and output cost risk in commodity prices, currency movements and interest rates, facilitating hedging that allows business more certainty in operations, allowing them to focus on the core expertise. Crucially, it does this from both sides of the market, trend following long and short. From a portfolio perspective, combining these is very attractive, as one side thrives on stability and generally rising growth, whilst the other thrives in times of instability. Put very simply, the Investment portfolio looks for cash flows, the Price side looks for crash flows. We think of trend following as a beta in its own right, an important distinction between us and other more traditional long only approaches. It is a beta that most portfolios are wildly underexposed to, if they have any exposure at all. We equalize the risk between them, viewing both as having long term positive expected returns while being uncorrelated most of the time, and often negatively correlated in times of stress. When it comes to adding alpha to these balanced betas, we do all the things the academic literature leads you to – buy value, momentum persists, diversify, equally weight. Over time, we expect all of these alpha decisions to contribute strongly to the static beta approach above.

The diversification of balancing these premiums has played out a number of times since the fund’s inception, and we are seeing it again as we start the new year. The stability the Investment Risk Portfolio prefers is rattled by fears of global growth. This is getting offset by the Price Risk side capturing the fear as it manifests itself through flows in other asset classes – falling commodity prices, a flight to safety in bonds and flows into safe haven currencies. It has been a great example of a concept we have seen for many years, and highlights how more traditional long only approaches to investing in commodities don’t make sense. Structurally, over time, human ingenuity lowers the real price of commodities, while cyclically they move on supply and demand. They are not static long only investments, a portfolio needs to be able to take both sides of the market, taking on risk from producers and users. We think of interest rates in a somewhat similar way – a factor outside the control of a business that needs to be managed. Developed market bonds offer very low or negative real returns. Investors that leverage bonds in order to equalize volatility or returns with equity markets are running real risks - having the flexibility to take exposure on both the long side and the short side will be crucial in the coming years.

For further information please contact:
Raymond E. Ix, Jr.
Senior Vice President