About that crisis period performance for Managed Futures…

We have long trumpeted the power of managed futures to perform in a crisis (see here), but are looking at a lot of red for managed futures today… down -2% to -2.5% as an asset class by our estimate. And this is on top of monthly losses of about -1% for the Newedge CTA index already.

So where is the crisis period performance? Isn’t this a textbook crisis? Regime changes, nuclear fallout, war in the Middle East… it sure seems like all the crisis bases are covered.

Well, as always – the devil is in the details. You see, when we talk about crisis period performance for managed futures, we’re talking about periods longer than a single day, week, or even month. We’re talking about periods in which traditional investments see major shifts (2007 to 2008 is the classic example, when stocks and commodities fell over several months).

In our opinion, crisis periods have two parts.  One is the crisis itself, which usually causes a reversal of the current market trend (in this case current trend was stocks, foreign currencies, commodities up; bonds and US Dollar down). The second part is the aftermath of the crisis in which new market conditions and trends emerge.

Managed futures generally outperform during the second part of the crisis, and underperform during the first part.  The thing is, traditional investments usually underperform in both parts – suffering during the crisis itself, and then continuing to struggle with their long only bias.

This looks a lot like 2008 to us, in which commodities saw a sharp reversal off of all time highs, causing pain for managed futures from July through September, before the aftermath portion of the crisis kicked in through October, November, and December. [Past performance is not necessarily indicative of future results]

The immediate problem for managed futures is that the existing trend most were involved in was UP, with recent multi-year highs in stocks, metals, grains, softs, and meats.  These trends are now in danger of being broken, with several markets at their annual lows and approaching their November ’10 lows; causing losses on the existing long positions.

Should those November lows be taken out, look for managed futures to shift (broadly speaking) from an overall long stance to an overall short stance.  And should the markets continue lower from there – that is when we’ll see managed futures shine as a crisis period performer.

Until then, managed futures will be licking their wounds like the rest of the world’s investors, unfortunately.

Write a Comment

Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, RCM's 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.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.

Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, RCM's 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.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.