Deconstructing Managed Futures Returns

Those familiar with 361 Capital know that our managed futures strategies fall into a particular niche referred to as counter trend, which makes our return patterns quite distinct from more traditional trend following approaches. Nonetheless, as we work closely with many of our clients on issues relating to asset allocation and portfolio construction, we are often asked for insight on the managed futures category more broadly, more so of late because over the last few years – 2016 in particular – trend followers have struggled a bit.

So with that in mind, we decided to dive into the trend following world and figure out what has been driving returns. We constructed risk-weighted, intermediate to long term trend models covering a variety of equity, commodity, currency and fixed income markets.

The following table provides a breakdown of performance over the past two decades by asset class, and for a risk-weighted portfolio with a volatility target of 10%. Note that there are multiple markets/contracts within each of the categories included, but for the sake of space are aggregated. So for example, within the three main currency categories, there are 21 underlying contracts.


Granted there are many ways to measure trends, many time frames over which to do so, and myriad ways to construct multi-asset class portfolios. Even still, when comparing our hypothetical trend following returns to some of the more common benchmarks, such as the Credit Suisse Managed Futures Index or the SG Trend Index, we find that our models broadly explain what is happening in the space.

What becomes immediately apparent upon examining the returns, is that 2016 was quite a difficult environment, with virtually none of the major asset classes exhibiting profitable trends. Further, it’s been a number of years since trends have broadly been exploitable across equity markets. Regardless, what we know about trend following, and which is indicated in these hypothetical returns, is that it does work more often than not, and has been a beneficial component to diversified portfolios. This also applies to our counter trend approaches, but we’ll save that for next week’s blog.

Read our related blog, Capacity – A Vital Consideration