“We trade with wide brush strokes, using a house painting brush and not a
fine scalpel.” — DAVID MARTIN
about 4 years, but not all investors require this level of detail.
Investment universe and capacity Currently, MFM trades 7 markets: 3 softs (coffee, sugar and cocoa); 2 grains (corn and soybeans) and 2 metals (gold and copper). All of the options traded are priced in USD on the ICE and CME. Strategy capacity is estimated at USD 1 billion for these markets, based on liquidity rules of not owning over 10% of net speculative open interest in an option, which is determined from CFTC commitment of trader reports. “The net speculative open interest is defined as the net delta and historically the highest level we reached was only 8%. It is usually below 5%,” says Martin.
The manager has traded other markets over his career and continues to monitor a variety of commodity and other markets, which might be traded at some stage. If energy was added, capacity could be at least USD 3 billion and a new strategy expanding the universe to include Bitcoin and some equities might take it to USD 5 billion. Equally, some clients with managed accounts are pinpointing a narrower universe to reduce or avoid overlaps with their existing exposures.
Early investors opted for separately managed accounts but now most investors choose onshore and offshore funds for reasons including limited
liability. The investor base has included some of the largest pension funds in the US, Germany and Switzerland, as well as corporate clients, family offices, and investment funds.
Outlook: Supercycle dynamics versus recession risks Though the strategy is systematic, Martin still has fundamental views and does see potential for another commodity Supercycle, partly caused by years of underinvestment in supply. “Commodity Supercycles generally last 8 to 15 years. The last one ran from 2000 to 2013. The new industrial revolution shifting from a petroleum-based world to one of green technology will require huge reindustrialization in the US and China. Electric vehicle infrastructure such as charging stations is not yet rolled out. This is a bullish factor for copper, natural gas and platinum, which could all be in huge demand. But this needs to be balanced against recessionary fears, due to higher interest rates. We do not see economic data supporting a recession yet,” says Martin.
The MFM strategy has potential to participate in the next commodity Supercycle but does not hold a religious level of conviction in the uber bullish thesis. Paying attention to technicals and sentiment means that MFM can also profit from down moves even when longer term fundamentals do seem constructive. THFJ
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