Most of the time, when we see managed futures mentioned by the mainstream press, we find ourselves shaking our heads at the botched application of industry terminology or gross misunderstanding of the asset class as a whole. In other (far too frequent) cases, we end up having to restrain ourselves from attempting to verbally eviscerate poorly informed or deliberately misleading authors. So when our perusal of managed futures coverage this morning uncovered a positive mention of managed futures that wasn’t a piece of marketing material and demonstrated institutional understanding of the diversification value managed futures offers… well, it was early, so we basically assumed we were still asleep and dreaming.
The article, entitled “Morgan Stanley Smith Barney Takes Risk Off, Shifts to Safe Havens,” explained the impetus for a recent asset class allocation shift, including taking an “overweight” position in managed futures, as such:
Calling the odds of a recession in the U.S. and beyond “uncomfortably high,” Morgan Stanley Smith Barney says it has shifted to an overweight position in safe haven assets and is underweighting risk assets. The change is “the most significant change to our tactical asset allocation in more than two years,” Morgan Stanley Smith Barney’s Chief Investment Officer Jeff Applegate and two colleagues wrote in a November markets report.
Yep- you read that correctly. They put managed futures in the “safe haven” category. But it gets better. We read through the portion of the report in question, and were quite pleased to see the folks at Morgan Stanley Smith Barney hitting the nail on the head:
As an asset class, managed futures have low historical correlations to other asset classes, providing a considerable degree of portfolio diversification. We believe good risk management begins with portfolio diversification, but it doesn’t have to end there. Because managed futures have historically performed well during periods of adverse equity markets, we are adopting a tactical overweight allocation.
Now, in the spirit of fairness, let’s put a few caveats in here. For one, just because the asset class is being classified as “risk off” and a “safe haven” in both the article and report does not mean that managed futures doesn’t present risk. Futures trading is complex, and large losses are a possibility. As the report clarifies, the value in the overweight allocation relates to noncorrelation to traditional asset classes. Moreover, while we have often discussed the crisis performance of managed futures ourselves, it’s also important to remember that past performance is not necessarily indicative of future results.
That being said, is it a little too optimistic to wonder/hope that people are finally starting to get it?