February 24, 2012
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It’s not exactly a secret that managed futures has gained in popularity in recent years. In fact, from 1980 to mid-2011, assets under management for the asset class increased by over 800%, rendering managed futures as one of the fastest growing alternative investments available. That kind of growth has attracted a fair amount of media attention. We discussed in the past how media coverage of the asset class has had struggles with accuracy, but we have to say, 2012 coverage, in general, has been much better than in years past.
A new article up at Financial Advisor, for instance, does a decent job of making the right argument about managed futures- that you need to understand the way managed futures performance works before you invest. There were a few points of contention, though. Two paragraphs, in particular, stuck out to us:
Proponents of managed futures say the strategy provides diversification by investing in a broad range of assets that offer non-correlation to traditional long-only stocks and bonds. Many investors interpret “non-correlation” to mean that managed futures should shine when traditional assets stumble. But that’s not always the case.
Managed futures, as measured by the Altegris 40 index, lost 3.14% last year. In comparison, the Nasdaq Composite dropped 1.8% the S&P 500 was flat and the Dow Jones Industrial Average gained 5.5%. And the 13 managed futures funds tracked by Morningstar that traded for the entire 12 months last year had an average negative return of 6.92%.
Two things come to mind here. For one, it’s incredibly important to remember that non-correlation does not equal inverse correlation. Inverse correlation means that if investment A goes up, investment B goes down, and vice versa. Non-correlation means that the performance of investment A is not linked to the performance of investment B. So, when we say managed futures is non-correlated to other traditional asset classes like stocks and bonds, it means that gains or losses there, statistically, historically, do not influence managed futures performance in one way or another. It is this kind of non-correlation that fuels arguments for crisis performance benefits.
For two, it’s important to remember that managed futures mutual funds and managed accounts are very, very different. Morningstar may report managed futures mutual funds down an average of -6.92% in 2011, but the BarclayHedge CTA Index (an admittedly imperfect proxy for asset class performance) was down a mere -3.00% (boasting 565 index constituents in comparison to the 40 in the Altegris 40). A loss is a loss, but if you have the capital to get into a managed account and the transparency, liquidity and tax benefits associated with such an investment, the performance numbers speak for themselves.
That being said, we’ll take articles like this over poorly researched pieces riddled with baseless claims any day of the week.
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.
The programs listed here are a sub-set of the full list of programs able to be accessed by subscribing to the database and reflect programs we currently work with and/or are more familiar with.
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. Individuals cannot invest in the index itself, and actual rates of return may be significantly different and more volatile than those of the index.
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.
Limitations on RCM Quintile + Star Rankings
The Quintile Rankings and RCM Star Rankings shown here are provided for informational purposes only. RCM does not guarantee the accuracy, timeliness or completeness of this information. The ranking methodology is proprietary and the results have not been audited or verified by an independent third party. Some CTAs may employ trading programs or strategies that are riskier than others. CTAs may manage customer accounts differently than their model results shown or make different trades in actual customer accounts versus their own accounts. Different CTAs are subject to different market conditions and risks that can significantly impact actual results. RCM and its affiliates receive compensation from some of the rated CTAs. Investors should perform their own due diligence before investing with any CTA. This ranking information should not be the sole basis for any investment decision.
See the full terms of use and risk disclaimer here.
March 1, 2012
It has taken a few decades, but it is nice to see at least some balanced reporting in the main stream financial press about managed futures. The benefits are clear, but there are a number of financial professionals who don’t benefit from clarity. I talk about these inherent conflicts and biases throughout my book “Jackass Investing: Don’t do it. Profit from it.” Although the book is not a ‘managed futures’ book, it does show the benefits of managed futures in helping to create a “Free Lunch” portfolio, one that earns both greater returns and less risk. And we get a number of calls from readers each week asking about managed futures, so it’s clear they’re getting the message. The two chapters that cover managed futures most directly are “Myth #12: Futures Trading is Risky” and “Myth #20:There is No Free Lunch” (remember, they’re myths!). I’m pleased to provide complimentary links to these two chapters at:
https://bit.ly/w70k8w
https://bit.ly/vxDo6v