There was the ultra-rare mention of managed futures on CNBC yesterday when they had on Susan Roberts of R.G. Niederhoffer Capital Management to discuss market movements in the wake of the Japan quake. (click here for the video) After explaining that we are exiting a period of historically low volatility levels, and mishandling the definition of a CTA somewhat (next time, just say it stands for professional ‘Commodity Trading Advisor’) Susan said:
“The takeaway is that you may not be getting what you expect from your investment in managed futures. Currently, because trend is down in bonds and up in equities, any flight to quality after a big shock event is going to catch CTAs positioned the wrong way in both of those markets, and you’re going to end up with more of the same from your CTA investors, so this is a very good time to take a step back, take a look at your portfolio, make sure you understand exactly what your risk exposures are, and perhaps investigate long volatility strategies, things that can make money during equity declines, and tail risk protection strategies.”
This is all fine and good, and we mentioned a similar thing in this space yesterday – that yesterday caused some pain for managed futures (CTAs). But a CNBC watching client of Attain took her comment ‘this is a very good time to take a step back’ to mean this is a good time to get out of managed futures.
Now, we’re not sure if Susan Roberts was saying that this is a good time to get out of managed futures. For one, it doesn’t make sense for her to be saying that while at the same time recommending you look at long volatility strategies (which managed futures are). But if that is somehow what she was saying – we couldn’t disagree more. In our opinion, this is the time you want to be getting into managed futures, because of their long history of crisis period outperformance and because they are a long volatility investment.
Yesterday definitely caused some pain, but managed futures should shine if this crisis turns into an extended down move for stocks and commodities. In her own words, now is the time to ‘investigate long volatility strategies, things that can make money during equity declines’, and managed futures are the poster child for that type of investment (see chart in our past post here).
Ms. Roberts – please clarify…. Are you saying now is the time to get out of managed futures? Or are you saying now is the time to step back from normal investments and get into managed futures because of their long volatility profile?
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