Key Takeaways
- • The SG Trend Index, tracking the ten largest managed futures funds, gained 36 percent in the first three quarters of 2022, significantly outperforming a traditional 60-40 stock and bond portfolio which lost 20 percent during the same period.
- • AQR Capital Management argues that managed futures will continue to generate top returns in 2023, driven by persistent macroeconomic volatility and large market moves—conditions historically favorable to trend-following strategies.
- • Trend-following strategies, which take long and short positions across liquid futures in currencies, commodities, fixed income, and equities, experienced a strong comeback after underperforming throughout the 2010s.
- • Yao Hua Ooi, principal at AQR, contends that investors should not fear entering managed futures at current levels, as trend-following strategies benefit when volatility is high and tends to persist in uncertain macro environments.
- • AQR identifies inflation and recession fears in the U.S. and Europe as key challenges that will maintain economic volatility over the next one to two years, supporting the thesis for sustained managed futures outperformance.
Summary
Managed futures have emerged as one of the strongest-performing hedge fund strategies in 2022, prompting AQR Capital Management to argue that the asset class remains an attractive allocation despite concerns about late entry timing. According to AQR's analysis, the SG Trend Index—which tracks the ten largest managed futures funds—delivered 36 percent returns in the first three quarters of the year, a marked contrast to the 20 percent decline in a traditional 60-40 equity-bond portfolio as macroeconomic conditions deteriorated.
The strategy's recent resurgence represents a notable reversal after a decade of underperformance during the 2010s. Managed futures employ trend-following mechanisms that take simultaneous long and short positions across liquid futures contracts spanning currencies, commodities, fixed income, and equities. This approach has proven particularly effective in the current environment characterized by elevated macroeconomic uncertainty and significant price dislocations across asset classes.
AQR's principal Yao Hua Ooi directly addresses investor hesitation about market timing, arguing that the traditional concern about buying at market peaks does not apply to managed futures. Trend-following strategies are structurally designed to perform best precisely when macroeconomic volatility is elevated—and critically, when such volatility exhibits persistence. In high-volatility regimes, the trend-following logic that underpins these strategies becomes more profitable, as directional moves across markets tend to sustain rather than reverse quickly.
The firm identifies multiple structural impediments to a return to pre-pandemic economic stability, including persistent inflation pressures and escalating recession risks across major developed economies. These conditions are expected to maintain the macroeconomic volatility necessary for managed futures to continue outperforming through 2023. AQR's thesis assumes that investors seeking portfolio diversification and downside protection will find managed futures particularly valuable given the current outlook for continued economic uncertainty and large cross-asset market moves.
The strategy's recent resurgence represents a notable reversal after a decade of underperformance during the 2010s. Managed futures employ trend-following mechanisms that take simultaneous long and short positions across liquid futures contracts spanning currencies, commodities, fixed income, and equities. This approach has proven particularly effective in the current environment characterized by elevated macroeconomic uncertainty and significant price dislocations across asset classes.
AQR's principal Yao Hua Ooi directly addresses investor hesitation about market timing, arguing that the traditional concern about buying at market peaks does not apply to managed futures. Trend-following strategies are structurally designed to perform best precisely when macroeconomic volatility is elevated—and critically, when such volatility exhibits persistence. In high-volatility regimes, the trend-following logic that underpins these strategies becomes more profitable, as directional moves across markets tend to sustain rather than reverse quickly.
The firm identifies multiple structural impediments to a return to pre-pandemic economic stability, including persistent inflation pressures and escalating recession risks across major developed economies. These conditions are expected to maintain the macroeconomic volatility necessary for managed futures to continue outperforming through 2023. AQR's thesis assumes that investors seeking portfolio diversification and downside protection will find managed futures particularly valuable given the current outlook for continued economic uncertainty and large cross-asset market moves.
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