S&P Global:  Indexing Managed Futures Strategies  April 23, 2020

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Author: Fiona Boal

Managed futures strategies generally tend to be trend following, which means that when an individual asset shows a clear price uptrend (or downtrend), the strategy will hold a long (or short) position in the asset. The strategies use a wide variety of quantitative models that utilize highly liquid, regulated, exchange-traded financial derivatives across equity, fixed income, foreign exchange, and commodity markets.

Traditionally, managed futures strategies have been utilized by investors as a complement or alternative to active or less-liquid alternative strategies. Such strategies have been touted by investors for their ability to offer liquidity and capital preservation during periods of broad equity market malaise.

Managed futures strategies have a unique profile relative to traditional investment strategies, including:

Long-term positive historical returns, achieved with unlevered risk levels that are on average one-half that of equities;

Low and sometimes negative correlations to equities and other asset classes; and

Strong historical performance during equity bear markets.

Managed futures strategies are well suited to indexing, given that they are based on transparent, rules-based quantitative models. S&P Dow Jones Indices offers three headline managed futures indices. All three reflect the price momentum of futures contracts across different asset classes.