Key Takeaways
- • AIMA research with Societe Generale finds portfolios including managed futures funds performed better and reduced risk over 2000-2016, according to the paper 'Riding the Wave.'
- • Managed futures funds' largest peak-to-trough drawdown since 2000 was -11.63%, less than a quarter of the -53.65% largest drawdown for global equities.
- • All CTAs in the Societe Generale managed futures database reported positive returns in 2008, with many up more than 30% for the year.
- • The managed futures sector reached USD340 billion in AUM at end-2016, up nine-fold since 2000, and recorded a USD10.4 billion net inflow in Q2 2017, the largest of any hedge fund strategy.
- • Trend-following, which accounts for approximately half of sector AUM, is the most common approach, and AIMA positions the paper as an educational guide for investors evaluating managed futures.
Summary
The Alternative Investment Management Association (AIMA) has published research indicating that portfolios including managed futures funds perform better and reduce more risk than portfolios without them. The paper, titled 'Riding the Wave' and focused on commodity trading advisers (CTAs) and managed futures funds, was produced with Societe Generale and analysed risk and return profiles of portfolios with and without managed futures from 2000 to 2016.
The research found that adding CTA strategies to a traditional 60% bond and 40% equity mix may increase returns and risk-adjusted returns by lowering volatility, while considerably reducing and shortening drawdowns. The largest drawdown for managed futures funds since 2000 was -11.63%, compared with -53.65% for global equities. The paper notes that large drawdowns can take investors years to recover from. During the 2008 global financial crisis, all CTAs in the Societe Generale managed futures database reported positive returns, many up more than 30% for the year.
The paper comes amid rising investor interest. According to the research, the sector has grown nine-fold since 2000 to USD340 billion in AUM at end-2016, and managed futures funds recorded a USD10.4 billion net inflow in Q2 2017, the largest of any hedge fund strategy. The paper attributes continued interest to the sector's liquidity, transparency and potential for uncorrelated returns. Trend-following, which buys rising markets and shorts falling ones, is the most common strategy and accounts for roughly half of sector assets.
AIMA CEO Jack Inglis said the paper will help investors understand managed futures and dispel the view that they are black boxes, noting that the number of strategies, exchanges and execution techniques means no two are alike. Tom Wrobel of Societe Generale Prime Services, a member of its Alternative Investment Consulting team, said CTAs are becoming a more mainstream strategy for institutional investors, while noting that performance has been mixed in 2017. Societe Generale Prime Services calculates indices and indicators to track the CTA industry.
The research found that adding CTA strategies to a traditional 60% bond and 40% equity mix may increase returns and risk-adjusted returns by lowering volatility, while considerably reducing and shortening drawdowns. The largest drawdown for managed futures funds since 2000 was -11.63%, compared with -53.65% for global equities. The paper notes that large drawdowns can take investors years to recover from. During the 2008 global financial crisis, all CTAs in the Societe Generale managed futures database reported positive returns, many up more than 30% for the year.
The paper comes amid rising investor interest. According to the research, the sector has grown nine-fold since 2000 to USD340 billion in AUM at end-2016, and managed futures funds recorded a USD10.4 billion net inflow in Q2 2017, the largest of any hedge fund strategy. The paper attributes continued interest to the sector's liquidity, transparency and potential for uncorrelated returns. Trend-following, which buys rising markets and shorts falling ones, is the most common strategy and accounts for roughly half of sector assets.
AIMA CEO Jack Inglis said the paper will help investors understand managed futures and dispel the view that they are black boxes, noting that the number of strategies, exchanges and execution techniques means no two are alike. Tom Wrobel of Societe Generale Prime Services, a member of its Alternative Investment Consulting team, said CTAs are becoming a more mainstream strategy for institutional investors, while noting that performance has been mixed in 2017. Societe Generale Prime Services calculates indices and indicators to track the CTA industry.
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