Key Takeaways
- • Managed futures (CTAs) are experiencing some of the steepest losses in years during 2025, prompting allocators to question the strategy's effectiveness as a diversifier despite its historical track record.
- • Global macro discretionary funds are significantly outperforming managed futures in 2025, yet the two strategies operate through fundamentally different mechanisms: CTAs employ systematic, trend-following approaches while macro discretionary relies on human analysis of economic, policy, and geopolitical factors.
- • Institutional investors are conflating two structurally different strategies and making poor allocation decisions as a result—withdrawing capital from underperforming strategies at cyclical lows and reinvesting after recoveries have already materialized.
- • According to J.P. Morgan's Paul Zummo, investor timing with CTAs has been persistently poor over 30 years, with capital flowing out during two-year downturns and reinvesting after dislocations have already generated outsized returns.
- • The current performance gap reflects a recurring behavioral pattern in alternative investment allocation rather than fundamental strategy failure, raising questions about whether investors truly understand the mechanics and timing requirements of hedge fund diversifiers.
Summary
Managed futures strategies, also known as commodity trading advisors (CTAs), are underperforming significantly in 2025, marking some of the worst results in years for the category. This downturn has prompted institutional allocators to reassess whether the once-reliable diversifier has lost its effectiveness. The frustration has been amplified by the simultaneous outperformance of global macro discretionary funds, leading many investors to question their allocation decisions and consider shifting capital between strategies.
However, this apparent contradiction reflects a fundamental misunderstanding of how these two strategies actually function. While both aim to protect portfolios during market dislocations and trade similar asset classes—currencies, futures, commodities, and fixed income—they operate through completely different mechanisms. Managed futures employ systematic, algorithm-driven trend-following strategies that respond mechanically to market signals. Global macro discretionary funds, by contrast, rely on human portfolio managers conducting fundamental analysis of broad economic conditions, policy decisions, geopolitical risks, and macroeconomic factors to inform trading decisions.
According to Jon Caplis, founder and CEO of hedge fund research firm PivotalPath, many institutional investors treat these two strategies as interchangeable despite their structural differences. This conflation leads to recurring behavioral mistakes in capital allocation. Caplis notes that this year's frustration with managed futures—and corresponding envy of global macro discretionary performance—reflects a deeper pattern of poor investor decision-making that has plagued alternative allocations for decades.
Paul Zummo, chief investment officer of J.P. Morgan Alternative Asset Management, emphasizes that the critical challenge for both strategies, particularly CTAs, is reliable performance during periods when protection is actually needed. Drawing on three decades of experience, Zummo observes that institutional capital flows into and out of CTAs have been "broadly wrong all the time." Investors systematically withdraw capital after two years of underperformance, only to reinvest after dislocations have already created significant profit opportunities. This procyclical behavior—selling low and buying high—has consistently undermined returns for those unable to maintain discipline through cyclical downturns.
The current market dynamics suggest that allocators may be repeating this historical pattern. Rather than a fundamental breakdown in managed futures as a hedge mechanism, the underperformance appears to reflect cyclical strategy weakness coinciding with conditions favoring discretionary macro approaches. The behavioral and structural differences between these strategies warrant separate evaluation frameworks and longer investment horizons than many institutional investors currently employ.
However, this apparent contradiction reflects a fundamental misunderstanding of how these two strategies actually function. While both aim to protect portfolios during market dislocations and trade similar asset classes—currencies, futures, commodities, and fixed income—they operate through completely different mechanisms. Managed futures employ systematic, algorithm-driven trend-following strategies that respond mechanically to market signals. Global macro discretionary funds, by contrast, rely on human portfolio managers conducting fundamental analysis of broad economic conditions, policy decisions, geopolitical risks, and macroeconomic factors to inform trading decisions.
According to Jon Caplis, founder and CEO of hedge fund research firm PivotalPath, many institutional investors treat these two strategies as interchangeable despite their structural differences. This conflation leads to recurring behavioral mistakes in capital allocation. Caplis notes that this year's frustration with managed futures—and corresponding envy of global macro discretionary performance—reflects a deeper pattern of poor investor decision-making that has plagued alternative allocations for decades.
Paul Zummo, chief investment officer of J.P. Morgan Alternative Asset Management, emphasizes that the critical challenge for both strategies, particularly CTAs, is reliable performance during periods when protection is actually needed. Drawing on three decades of experience, Zummo observes that institutional capital flows into and out of CTAs have been "broadly wrong all the time." Investors systematically withdraw capital after two years of underperformance, only to reinvest after dislocations have already created significant profit opportunities. This procyclical behavior—selling low and buying high—has consistently undermined returns for those unable to maintain discipline through cyclical downturns.
The current market dynamics suggest that allocators may be repeating this historical pattern. Rather than a fundamental breakdown in managed futures as a hedge mechanism, the underperformance appears to reflect cyclical strategy weakness coinciding with conditions favoring discretionary macro approaches. The behavioral and structural differences between these strategies warrant separate evaluation frameworks and longer investment horizons than many institutional investors currently employ.
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