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.

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.

The impact of the highly uncertain macro environment in which we find ourselves, coupled with the near universal expectation that future returns for most asset classes will trail their long term historic averages, can be seen in the increased acceptance of alternative investments. A recent poll of 755 financial advisors, conducted by WealthManagement.com, found the following: