Presidential Election Cycles Good For Managed Futures?

There’s no doubt this presidential cycle has been… interesting. The standard pedigree no longer exists, the candidates of the two major parties have the worst net popularity rating (strongly favor minus strongly unfavored) than any other candidate dating back to the 1980’s, and the anticipation of what’s going to happen next is captivating the world.

We don’t like playing political pundit or predictor, but what we can do in this environment is look back on how Managed Futures has performed during previous presidential election years. Of course past (election year) performance is not necessarily indicative of futures results, and there’s nothing to say that it’s coincidental and not correlational.

For more insight, we turn to Andrew Strasman of Totem Asset Group, examining how CTAs have performed in the past. His goal is to specifically see how the top 14 “established” Managed Futures managers that have been around since the 1990’s, performed in the fourth quarter of non-election years compared to fourth quarter performance in presidential election years.

Enjoy!

PAST PERFORMANCE MAY NOT BE INDICATIVE OF FUTURE RETURNS  

With general elections held only every four years and most firms folding up tent long before hitting their 30 year mark, we just don’t have that much data to work with and a hefty survivorship and reporting bias remain for those that do.  Furthermore, the CTA model has changed as fully-funded customer accounts used to earn interest; now they are often notionally funded and what interest?  CTA strategies offer a lot more trading exposure than just T-Bill interest, but this should be noted. 

We took our 14 firms and divided them into 2 cohorts: 1) the over $1 Billion AUM firms, and 2) the under $1 Billion AUM crowd.  The top 3 firms in our lists account for 86% of the entire assets in play – enough to make Pareto blush.  And this does not even take into account another $34+ Billion assetgathering monster which is conspicuous in its absence from the list. 

It quickly becomes evident how a small number of firms dominate the total assets in this space.   

For the over $1B group, trend following likely has a lesser role to play due to capacity constraints of the strategy.  These multi-strategy managers also actively engage in other strategies such as: carry, risk parity, counter-trend and permanent portfolio amongst others.  And while it isn’t likely that all of the second group remain strict “Pavlovian” trend followers, we might suggest that trend following has a larger role to play in generating returns than it does for the first group. 

The following table shows the mean Q4 returns for both Election and Non-Election years, by cohort and firm:  

CTA Election Year

It may be that once market participants all have better information, as in who is going to be the next Commander in Chief and what policies are likely to be in place, they will feel better about marking real world capital expenditures.  It may be during a cooling period and waiting for these polices to become clear, many tradable instruments coil into a tightly wound ball which finally releases with new November realizations.  And maybe this is just a statistical fluke.

It has been documented that CTA and Trend Strategies trading profiles will start to resemble

those of a “long volatility” or Convex profile, a theme we have touched on several times in our previous monthly essays.  While it borders on hubris to think that one can possibly understand all the forces in play on market prices at any time, we may be able to agree that a period of rising volatility will tend to be good for these strategies.  And Election Time offers the perfect potential catalyst

 

Whale CTA Guest Post Election YearJust don’t be like this guy on the right come Fall…

Maybe… 

 

 

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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.