Managed Futures Performance Is NOT Like Rental Income
December 2016 - Managed Futures
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Sometimes individuals invest in managed futures and expect consistent, steady returns from month-to-month and year-to-year; similar to rental property income. The reality is quite the contrary. Managed futures and CTAs are speculative investments (similar to Equities), and should not be relied on for “income.” Any investor that starts investing with CTAs with the expectation of the return stream being monthly and consistent will most likely be disappointed.
Portfolio managers at CTAs research new trade ideas on a constant basis. From that pool of ideas, a trade may be executed daily, weekly or monthly depending on the investment strategy. Because some trades are unprofitable, while others are profitable or breakeven, trading results tend to be quite inconsistent. In order to be successful, a CTA has to either have a higher percentage of winning trades versus losing trades, OR their winning trades have to be much larger than their losing trades. This characteristic of trading is what results in a CTAs’ performance being described as “lumpy” or inconsistent.
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