Andrew Beer Says 60/40 Rest Was Never Real; Managed Futures Delivered 330bps of Alpha

Andrew Beer, CEO of managed-futures ETF provider DBi, argues on the Top Traders Unplugged podcast that the 60/40 stock-bond portfolio was a "historical accident" built on a "20-year bubble in the bond market." At the peak of that bubble, roughly $18 trillion of global bonds carried negative yields, and some countries issued 50- and 100-year bonds. Beer contends that allocators anchored on that period and misread bonds as the "ideal diversifier" for equities. He also says the standard response to inflation concerns in 2021, selling stocks to buy more bonds, was among the worst errors an investor could make at the peak of the bond bubble, a point made by host Niels Kaastrup-Larsen.

Beer's alternative is managed futures, which he presents through the SocGen CTA Index, created by NewEdge in January 2000. The index tracks the 20 largest funds or strategies, including Winton, Man AHL, Lynx and Campbell, and provides nearly 27 years of daily data. According to Beer's figures, the index delivered roughly 330 basis points of alpha, near-zero correlation to stocks and bonds, and a maximum monthly drawdown of 16% on average. The Sharpe ratio is 0.34 net of fees, compared with roughly 0.4 for the S&P 500 and bonds and roughly 0.6 for gold, though Beer notes the equity and bond figures are gross of fees. He estimates that against liquid ETFs and mutual funds, 0.34 equates to roughly cash plus 275 basis points over time.

Beer walks through three equity bear markets to support his crisis-alpha claim. During the dot-com period (2000-2002), the S&P 500 fell 40% and the Nasdaq about 80%, while the CTA Index gained 26%. In the 2008 financial crisis, stocks fell 40-50%, REITs and commodities each fell about 50%, and the CTA Index rose 11%. In 2022, bonds fell 15-20% alongside a roughly 20% equity drawdown, REITs fell 25%, and the CTA Index gained again, reaching roughly +20% for the year. Beer attributes this to managed-futures funds profiting when prices deviate sharply from consensus, which requires the ability to take and hold large positions in either direction.

Beer concedes several weaknesses. Returns are lumpy, with +13% in 2008 followed by roughly five flat years. Individual fund maximum drawdowns average closer to 25%, with a wide range, and controlling drawdowns requires owning several funds. Manager selection is difficult because annual dispersion is wide and returns show little persistence. Beer also cites AQR's 2010 managed-futures mutual fund, which peaked near $14 billion before underperforming and declining roughly 20% over the following five years, as an example of how the sector's marketing has hurt it. He argues the sector's recovery story is weaker than equities' "just hold on" narrative. Finally, Beer blames naming for much of the resistance, saying "CTA," "trend following" and "managed futures" are unappealing terms, and he proposes "contrarian tactical alpha" as a replacement, comparing it to past rebrands such as leveraged buyouts becoming private equity.