We’re not alone in wondering what’s behind lackluster managed futures performance lately. Our newsletter “Is Trend Following Dead” inspired a vigorous LinkedIn debate about the asset class’s woes, with theories ranging from the rise of HFT to government intervention in the markets offered as an explanation for the problem. But there’s another common criticism of managed futures that has been offered as an explanation – an article from CityWire Wealth Manager presents the idea that the low interest rate environment has been hurting managed futures performance:
‘We believe that a major portion of the CTA returns prior to 2009 came from the interest income, says Peter Kambolin, chief executive of Systematic Alpha Management. ‘If on average, CTAs use 15% or less of equity for margin-to-equity purposes, that means that at least 85% of assets under management in the past generated 3%-4% per year in interest income from investments into Treasuries and short-term commercial paper.
‘That accounts in some cases to over 50% of CTA net returns on the year. Clearly, since interest rates have dropped to nearly 0% level, CTAs have not been able to produce any returns.’
This sounds intuitive, but the problem is it just doesn’t stack up when you look at the historical record. We tackled this hypothesis once before, and found that, while managed futures has historically experienced lower performance in very low interest rate environments, managed futures has also seen lackluster performance during periods of higher-than normal interest rates, too.
Disclaimer: past performance is not necessarily indicative of future results.
The best performance has tended to come during periods of middling interest rates. In other words, interest rates are not a not a cut-and-dried indicator of managed futures success. That being said, a sustained increase in interest rates would certainly be welcome for managed futures – and not just for the T-bill tailwind. But CTAs can enjoy the bond trade even when interest rates are bumping up against the zero bound. So this is another hypothesis that, while sounding reasonable, doesn’t quite stand up under scrutiny.
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.
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