It’s been almost a year since we expanded our look at managed futures mutual funds to consider the new entrants into the space, and now we have a year’s worth of data to test our hypothesis that these funds would, in aggregate, underperform the broader managed futures indices. So far, we’ve been right, with the average managed futures mutual fund returning -9.42% after load fees (and -5.09% before load fees), compared with an average of -3.38% for the three main managed futures indices – an underperformance of -6.04% (-1.71% before the effect of load fees).
The news for the mutual funds was not uniformly negative, though. As you can see from the table below, two of the funds – 361 Managed Futures Strategy and AQR Managed Futures Strategy – did manage to outperform their benchmarks for the year even after considering the effect of load fees (which was easier for AQR, since they don’t charge a load fee). Nevertheless, we don’t find a record of 2 out of 19 very persuasive. Four of the funds below are not included in the averages or our overall assessment owing to the fact that their performance records began partway through 2012, but we will continue to watch all these funds going into 2013.
As always, we don’t think mutual funds are the best vehicle to access the managed futures asset class if you have the capital to stand on your own and invest in individually managed accounts (see after the chart for why), and the numbers continue to back us up. Above all, this chart should highlight one very important investing principle: you should never, ever pay a load fee. Read ‘em and weep below (Disclaimer: past performance is not necessarily indicative of future results).
Sorted by YTD Return After Load
*Indicates funds with partial 2012 data, which are not included in category averages.
We have been critical of these products for a few reasons. For one, they are being marketed as managed futures products, but many do not contain any actual managed futures exposure; rather they merely utilize a trend following model to approximate such exposure. Then there are some that actually do invest in underlying managed futures managers (kudos to you), but do so at a very high cost with extra layers of fees and, more often than not, a high front end sales (load) fee. And then there are those which are not providing managed futures exposure and charging load fees: the worst of the worst. Although the load fees may be waived for investors hitting certain “breakpoints” due to larger investments, we still feel the bulk of these funds will underperform the managed futures indices even without the hefty load fees.