In Defense of Managed Futures Indices – Part 1

Our weekly newsletter is out, and we’re taking a closer look at the various managed futures indices. When we begin to explain an asset class as complex as managed futures to investors, the first place many turn is the world of managed futures indices. The whole idea behind these indices – and really ANY financial index – is to provide a snapshot of an investment world. It gives you a glimpse of performance, and provides a starting point for further investigation into the allocation opportunities.

For alternatives such as hedge funds and managed futures, there aren’t stock tickers like AAPL that you can punch into your computer, and you aren’t going to hear “managed futures was up 2% today” on the nightly news. With individual program data more difficult to obtain than it is in the stock world, the indices perhaps take on an even greater role in generalizing the asset class’s performance.

Problem is, there’s a long list of academic papers calling into question the validity of indices, essentially saying they upwardly bias the results in one way or another. Then there’s a whole different slew that attack the databases used to create indices, and get cited as evidence against the indices. Should that really influence your decisions or reliance on indexes to provide a snapshot of the industry?

It should be noted that there is no such thing as a PERFECT financial index. Whether you’re looking at bonds, stocks, real estate, hedge funds or managed futures, their respective indices will never be able to give you an adequate view of the entire universe of investment possibilities. Because they only represent a fragment of the selections you as an investor can make, they will invariably suffer from a variety of biases. These biases can vary based on how the components of the index are selected, how the index is maintained, and how data for performance is collected. In some cases, bias can be a good thing. In others, bias can taint the integrity of the information you’re consuming. The key is knowing the extent of the bias, and what impact it has on the data.

This hasn’t stopped critics from attacking managed futures at full speed in the past, nor the investor questions from coming in as a result. Are my allocations going to underperform by 3 to 5% because of this bias? Should I even bother looking? We have long promised to take a look at the reported bias is the managed futures indices, and the arguments made against them, and after poring over the literature – found the time has come for just such a defense. But as we began to craft the arguments, we found the word count inching higher and higher. Rather than deliver you a small Russian novel, we’re splitting this newsletter into two parts, and this is the first.

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