• Managed Futures Disappoints  

    There has been talk about the performance of hedge funds, and in particular CTAs/Managed Futures funds, in February when markets sold off for the first time in recent memory. People seem to be surprised that these strategies posted negative returns in February, while the S&P 500 was down 3.69%. I’d like to address why such a focus and such expectations are unjustified.

  • Trending Following in 2017  

    Many of you know us from our counter-trend models, which can act as a great complement to trend-following models, but this blog will be focused on trend following given the struggles they’ve had recently.


    We are frequently asked how investors should analyze the performance of managed futures strategies. This is quite challenging due to the diversity of the strategies employed, and the non-constant exposure, both long and short, across one or more asset classes (i.e., stocks, bonds, commodities and currencies). Because of the lack of consistent exposure, a standard benchmark like the S&P 500 Index is sub-optimal, to say the least, but there are ways to suss out a manager’s value add.


    2017 has seen equity markets steadily moving higher, volatility remaining at historically low levels, and trend-following managed futures strategies continuing to languish. Amid this backdrop, investors naturally ask if this has created a buying opportunity, with the expectation that markets, volatility, and trend-following should revert to longer-term averages. This is a reasonable question and expectation, but what really matters is whether investors can predict when this long-awaited mean-reversion will occur. Conventional wisdom says they can’t, but according to a recent article at ValueWalk, it appears the author believes timing managed futures allocations may be possible. In a recent whitepaper, they address “some of the potential benefits, challenges and opportunity costs” seen for investors who are “seeking to time managed futures allocations.”


    Over the past year, the Managed Futures category has suffered net outflows of approximately $2.8 billion, equating to roughly a 10% reduction in total AUM on a year-over-year basis, after accounting for the performance of the category. Those net outflows give Managed Futures the unenviable distinction of landing at the bottom of all of the Morningstar categories that we track, inclusive of both live and dead mutual funds and ETFs, across 8 alternative categories, 18 equity categories, 18 fixed income categories, and 1 commodity category. This may be understandable (albeit unjustifiable we’d argue) in light of the fact that with a one-year category average return of -4.7% through the end of August, only Bear Market (-24.4%) and Long Government (-5.7%) funds performed worse. Interestingly, Bear Market and Long Government funds experienced performance-adjusted net inflows equating to 18% and 5% of total assets under management, respectively, despite their performance. Hmm.