5/11/2010 Managed Futures Newsletter | How did…

HOW DID MANAGED FUTURES PERFORM DURING LAST WEEK'S

'FLASH CRASH'?
May 10, 2010

Last week w e discussed how w e felt that Global Market Volatility seemed to be increasing and w as perhaps due for a breakout, which
w ould in turn help pull systematic managed futures programs out of their 16-month sidew ays funk. Well, as the old saying goes, it is often
better to be lucky than good, and w e were lucky enough to be spot on w ith our volatility call as what is being called the "Flash Crash"
pulled the Dow Jones Industrial Average down 1000 points at one point on Thursday of last w eek, including a record negative 700 points
down move in 15 minutes. The VIX, w hich measures investor fear in the market, spiked +63% from the day before when it hit its lowest
levels since March of 2008. These are jaw-dropping numbers that are still difficult for even the most seasoned traders to comprehend.

Luckily for long stock investors, stocks bounced back nearly as quickly as they went dow n, and the Dow finished the day dow n a more
reasonable -348 points. What exactly happened on Thursday is still being investigated. And, from the sound of it w ill take at least a few
more days to sort out. But left in the carnage is the everyday retail stock market investor w ho may have thought she already had seen
the w orst of the markets during the credit crisis of 2008. Now, eighteen months later, w e are all left to wonder when the next "crash" will
happen.

Managed futures investors are often the most unpopular people at the party, who actually cheer on such volatile markets, cheering the
market to zero; and everyone is asking - how did managed futures perform during the "Flash Crash". Well, as might be expected given
managed futures history as a crisis period investment - Thursday, May 6th w as not that bad of a day for commodity trading advisors. They
w eren’t up, as one w ould hope, but w ith the NewEdge CTA Index posting a respectable performance at -0.28% , they w ere a far cry better
than -3.24% stocks saw as represented by the S&P 500 stock index.

The table below shows that the average performance of the programs on our watch list w as right in line with the managed futures index,
losing -0.41%. But upon closer inspection, w e see that losses were mainly centered on option selling programs and contrarian programs
Dighton and Paskewitz. We would expect short volatility programs to be dow n during a volatility spike, and also programs which w ere
buying into the sell off as contrarians to be dow n. The ‘traditional’ long volatility programs w ere ahead, on the whole.

Past performance is not necessarily indicative of future results

Est. Est. Est.

Daily Daily Daily
ROR ROR ROR
Manager - for Manager - for Manager - for
Program 5/6/10 Program 5/6/10 Program 5/6/10

Rosetta Capital HB Capital Mgt

2100 Xenon (2X) 3.32 Mgt LLC 0.39 Diversified -0.70

FCI Option Mesirow - Robinson

Selling Strategy 2.00 Absolute Return 0.32 Langley -0.80

Futures Truth Mesirow - Low

SAM 101 1.64 Volatility 0.30 Cervino Capital -1.69

Covenant -
Aggressive 1.50 NDX Shadrach 0.26 ACE - DCP -3.16

Integrated - Cervino Capital

Concentrated 1.24 NDX Abedengo 0.18 (2X) -3.84

Dominion -
Sapphire Sequential
Program 1.15 Capital Mgt LLC -0.07 ACE – SIPC -4.96

2100 Xenon Roe Capital - Paskew itz 3X

Fixed Income 1.10 Jefferson -0.15 Stock Index -5.26

FCI Credit
Premium Roe Capital -
Program 1.02 Monticello -0.21 Dighton Capital -5.82

Hoffman Asset Emil Van Essen All Program -

Management 0.85 - Low Min -0.33 Average 0.41%

APA Strategic Accela Capital Non option

Diversfication 0.62 Management -0.50 seller Avg: 0.21%

The next question at the forefront of most clients’ minds is w here does the market volatility go from here? Despite the VIX falling over -
30% today in the midst of a hefty rebound, our view is that volatility is moving towards an expansionary period after having contracted for

attaincapital.com/…/382 1/5
5/11/2010 y y , Managed Futuresy Newsletter
g | How did…
p yp g
the past 16 months or so.

It is worth noting here that the VIX actually measures only one side of volatility, the dow nside volatility represented by the price people
are w illing to pay for Put options (dow nside protection) on the SPX. Managed Futures programs are more concerned w ith BOTH sides of
volatility, meaning even a 400 point up day like today can mean an increase in volatility despite the VIX telling us that volatility declined
30%.

This is because volatility measures how much a market can move both up and down, so how much it moves up on average each day is just
one side of the equation (w ith how much it can move dow n the other). For long volatility investments like managed futures, they don’t
really care w hether an expansion in volatility is caused by large up days, large dow n days, or both – they just know that the more markets
are moving (in both directions), the more opportunity of profits and losses.

So, w hen looking at volatility with a measure w hich considers both up and down volatility such as the Average True Range, we can see
that overall volatility actually increased today. (and is now up 289% since the low s last Wed - or from the market moving 7pts on average
to 27pts)

Our view that volatility is on the increase is also based on some heavy skepticism that the plan rolled out by the EU today will: 1. Be
approved by all involved, and 2. Not cause more problems than it solves by putting the “good” Euro-zone countries further into debt,
debasing their currency, etc. We are now nearly tw o years into the credit crisis, and it appeared to us last week that all that has changed
is the names involved; with entire countries have replacing corporations as the ones with overleveraged debt portfolios.

Finally, w hat no one is talking about anymore thanks to the quick turnaround from that 1,000 point loss is the flaws in the US market
system exposed last Thursday. It is coming out that High Frequency Trading firms (some of w hich account for up to 5% of all trading volume
in US stocks on any given day)w ere partly to blame as they stopped all trading during the fall, pulling a floor out from under the market.
The stabilizing (or in this case destabilizing) used to be represented by human ‘specialists’ on the floor of the NYSE. Now w e’re relying on
computer algorithms to provide bids when no one else w ill, and they failed on their first big test. How this plays out in the months and
years ahead is anyone’s guess, but to me it means more tests of the system either intentionally by hackers, terrorists, hedge funds, or
prop firms thinking they’ll profit from it (ideologically in the case of the former tw o, financially in the case of the latter two).

Stress Period Performance

The reality is that large stock market declines (whether they be of the single day variety like last w eek or multi-year variety like 2007/2008
are more common than all of us w ould like to see. Stock market crisis periods happen, no matter what the government of the w orld try
and do to keep them from happening (or perhaps because governments try and keep them from happening). Whether today’s rally signals
the end of the ‘flash crash’, or w hether it is a quick up move in the midst of a new leg dow nwards (there were two days with larger gains
than today in the midst of the broad sell off in 2008), w e don’t know and aren’t here to predict.

But everyone w ith investments tied to the stock market cringes on a day like last Thursday when 16 months of stock market gains were
w iped out in mere minutes, and it pays in our humble opinion to protect yourself from such market crisis periods .

Historically, managed futures have been the asset class w hich performs best when global stock markets are struggling through a crisis.
Managed Futures have gained an average of +17% during the past 6 major market crisis. (2008 Credit Crisis, 9/11 tragedy, Internet
Bubble, Russian Ruble Default, etc.), as compared to world stocks being down an average of -27% during these periods.

Past Performance is not necessarily indicative of future results

In addition to managed futures, individual trading systems like Compass SP and Strategic ES also present a unique investment opportunity
for those looking for long volatility exposure. This is because trading systems are designed in such a way that they risk a relatively small
fixed amount ($1500 for example) per trade in hopes of making a variable amount based on how far the market moves in the trades

attaincapital.com/…/382 2/5
5/11/2010 ($ p )p Managed
p Futures
g Newsletter | How did…
direction. So, the more a market moves, the larger the variable gain amount can become – while the fixed risk amount stays the same.
(Disclaimer: a system could lose more than the fixed amount via a limit dow n move, prices moving through a stop order, and other such
market events)

Diversify now, not after another crash:

If everything above makes sense to you, w e urge you to not be the normal investor w ho looks into diversifying his/her stock holdings
AFTER a big sell off. Diversification works much better BEFORE you need it. In our experience, successful investors look to diversify before
there is even a hint of a problem. They even look to diversify when their main holding are making new highs. The other 95% of the
investing public tends to chase returns and run away from losses, creating a death spiral of sorts where they are constantly getting in at
the highs and out at the low s. Wouldn’t it be nice to break that cycle? To actually get out (of a portion) at the highs, and get in at the low s.

But w hat if we keep going up in stocks? Won’t I be worse off for diversifying a portion of my portfolio? Possibly? Stocks could outperform
managed futures over the next 2,5, and 10 year periods, making a portfolio with stocks alone better than one including stocks and
managed futures. But remember two things here.

One, w e’re talking about diversifying a PORTION of your traditional stock & bond portfolio, not the entire thing. We recommend anywhere
from 5% to 40% of your overall assets invested in managed futures, and a study by the CME, see it here, calculated 20% of assets as the
ideal level of managed futures exposure.

Secondly, a managed futures investment w ill not necessarily lose money if stocks continue higher. Insurance via alternative investments
does not have to be a w asting asset as it can actually make money even if nothing happens.

That’s the beauty of managed futures….they aren’t like dedicated short funds which will, by definition, struggle when the market goes up.
Futures investing carries the risk of substantial losses, meaning they of course can lose money w hen the market goes up, as they have
done so far this year, but that hasn’t always been the scenario in the past. In fact, managed futures tend to hold their own in boom times
for stocks. See here.

How does this work? It works because managed futures are NON correlated with stocks and bonds. Since 1994, the S&P 500 and
CSFB/Tremont’s managed futures index have a correlation of -0.15. So, managed futures have proven to be non correlated in the past,
versus negatively correlated, meaning they move independently of the stock and bond markets. This means a strong stock market isn’t
necessarily a bad thing for managed futures. It also means a big sell off in stocks won’t necessarily result in big returns for managed
futures, but the past history has show n managed futures to outperform during times of market stress.

How can I diversify:

We have touched on this in a past new sletter, and it bears repeating here. When looking for the stress period performance of managed
futures – it doesn’t do to diversify into just any managed futures program. You w ant a managed futures program w hich tracks the
managed futures index as closely as possible, and not one w hich may actually end up increasing your stock index exposure.

So, the first step is finding a program you are comfortable will be diversifying you aw ay from stock market exposure, not adding to it. The
next is figuring out how much, and when – to allocate to managed futures.

History show s us that managed futures are the place to be during bear markets and crises situations. Futures based investments are
often viewed as a w ay to generate oversized returns due to the leverage built into futures contracts [the use of increased leverage can
substantially increase the risk of loss] and potential for large moves, but it is their low correlation w ith traditional markets w hich causes
managed futures investments to be volatility reducers and portfolio diversifies during the bad times.

Walter Gallwas

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.

Was this article particularly interesting or helpful to you?

Forward this email to a friend who might find it useful.

Not on our mailing list? Enter your email to receive this weekly
SUBSCRIBE
newsletter:

Feature | Week in Review: |

Week in Review: : Dow loses 700 points in 15 minutes, while Oil and
Euro down significantly
Energy futures show ed the largest sector decline due to the European turmoil last w eek as w orries of weaker demand in the face of
current adequate supply w eighed heavily on prices. Crude Oil -12.81% led the complex lower followed by RBOB Gasoline -11.43% and
Heating Oil -10.20%. Natural Gas +2.42% posted a rally w ith spread trading versus other energy contracts the main feature.

The Stock Index sector fell victim to a w orldwide investor purge of stocks due to European liquidity issues and ideas on how the sovereign
debt issues could hamper the recent economic turnaround. The weakness was heaviest in the S&P 500 futures -9.16% follow ed by Russell

attaincapital.com/…/382 3/5
5/11/2010 p Managed Futures Newsletter | How did… y
2000 futures -8.90%, Mid-Cap 400 futures -8.18%, NASDAQ futures -7.41% and Dow futures -5.70%.

Industrial metals were weaker on ideas that demand growth would be curtailed not only by European issues, but ideas that Far East
purchasing would slow after China again increased their lending reserve policy for banks. Palladium -8.20% led price declines
followed by Copper -6.23%, Platinum -4.54% and Silver -1.01%.

The balance of Currency activity last week w as under the w eather with European turmoil and elections making for a very sensitive
environment. For the week Euro Currency fell -4.02% follow ed by the British Pound -3.05% and Swiss Franc -2.70%.

Commodity and Food products w ere mostly lower last w eek, although demand and weather aided rallies in Live Cattle +1.62% and Wheat
+1.47%. The balance of the complex w as hampered by w eakness in the financials and ideas that better crop w eather could aid in bigger
supplies for the current grow ing year. Sugar -9.24% had the largest decline followed by Cocoa -6.88%, Cotton -4.07%, Lean Hogs -1.35%,
OJ -1.27% and Coffee -1.03%.

Managed Futures

Specialty market manager, 2100 Xenon Fixed Income Program, was last week’s top single sector program earning +2.08%. For those
investors who have been tracking the program since our 4/12/10 newsletter
(http://w ww .attaincapital.com/managed_futures_new sletter/379) you’ll note that last week w as one of the prime reasons to have active
exposure to the fixed income markets – bond yields fell, along with stocks, sending futures prices higher globally which allow ed 2100
Xenon to capitalize.

Other Specialty manager May estimates are as follows: Emil Van Essen Low Minimum Spread Program +1.77%, NDX Abednego -0.15%, NDX
Shadrach -0.04%, and Rosetta +0.08%.

Multi Market:

Futures Truth has the early lead for May in the multi-market sector. The Futures Truth MS4 program +6.14% est. is the top performer thus
far, w hile is close behind at Futures Truth SAM 101 at +4.37%. Clarke Capital has started May off on the right foot w ith estimated returns
of +8.06% for the Global Magnum Program, +3.54% for the Worldw ide Program, and +0.03% for Global Basic. The 2100 Xenon Managed
Futures Program (2X) also had a great start to May at +3.30%. The only other manager in the black thus far is Dominion Capital
Management at +0.15%. APA Modified, DMH, Mesirow Financial Commodities Low Volatility, and Quantum Leap Capital are at breakeven.

Multi-Market Programs in the red include Sequential Capital Management -0.25%, GT Capital -0.45%, Robinson Langley -0.92%, APA
Strategic Diversification -1.24%, Integrated Managed Futures -2.25%, Hoffman Asset Management -2.75%, HB Capital -1.49%, Applied
Capital Systems -1.93%, Covenant Capital Aggressive -2.86%, Accela Capital Management -3.23%, and Dighton Capital USA Aggressive
Futures Trading -7.70%.

Short Term Index trader Paskew itz Asset Management Contrarian 3X Stock Index is at -7.56% after reversing long.

As volatility rose exponentially last week, Option traders w ere truly tested for the first time since October 2008. The end result (today’s
huge recovery) was more of a non event (so far) as equity markets recovered; however the follow ing numbers do give us a sense of w hat
could have been had equities continued low er and also gives us a sense of what we can expect to see out of short volatility traders from
time to time.

Index Option managers were the most affected by the volatility increase and closed Friday w ith the following estimates for the month: ACE
SIPC -14.31%, Cervino 1x -5.58%, Cervino 2x -12.53%, Clarity Capital -6.89%, Crescent Bay PSI -8.07%, and Crescent Bay BVP -11.59%.

As w e w ould have expected, Diversified Option managers handled the volatility better than their Index Option counter parts. The current
May estimates are as follows: ACE DCP -5.43%, FCI OSS +0.39%, FCI CPP +3.95%, and HB Capital -1.49%.

Trading Systems

Last week w as a difficult w eek for most of the trading systems as the volatility spiked upwards and the markets moved erratically due to
the European Union debt crisis and the pricing error that took place at the NYSE. How ever, the day trading systems handled the erratic
moves well and posted some nice results. Rayo Plus DAX led the way with a return of +$4,720.00 , Beta–DT eRL at +$3,249.17, Waugh eRL
at +$2,240.00, Clipper eRL at +$1,930.00, Upperhand ES at +$790.00, Compass SP at +$325.00, ViperIIA EMD at +$185.58, and Compass
ES at +$20.

Unfortunately, the swing trading systems couldn’t handle the volatility as w ell as the day trading systems. Waugh Swing ES finished the
w eek at -$17.50, BetaCon 4/1 EX at -$40.00, MoneyBeans S at -$47.50, AG Xtreme2 ES at -$441.76, Ultramini ES at -$492.50, Bam 90
Single Contract ES at -$655.00, Polaris ES at -$680.00, Strategic NQ at -$695.00, Strategic ES at -$1,052.50, Waugh CTO eRL at -
$1,080.00, AG Xtreme2 SP at -$1,875.00, Moneymaker ES at -$2,210.00, AG Mechwarrior ES at -$2,377.50, Tzar ES at -$4, 489.17,
Strategic SP at -$4,950.00, and Bam 90 ES at -$9,303.06.

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.

attaincapital.com/…/382 4/5
5/11/2010 Managed Futures Newsletter | How did…
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: |

Copyright © 2010 Attain Capital Management, licensed Managed Futures, Trading System & Commodity Brokers. All Rights
Reserved.
(312) 604-0926 | Legal & Disclaimers | Privacy Policy

attaincapital.com/…/382 5/5