AIMA/SocGen Study: Portfolios That Include Managed Futures Outperform

Sep 25 2017 | 5:44pm ET

Investment portfolios that include managed futures funds perform better and reduce more risk than those without them, according to new research from the Alternative Investment Management Association (AIMA).

The new paper, entitled “Riding the Wave,” was published jointly by AIMA and Societe Generale and analyzes the risk and return profiles of investment portfolios including and excluding managed futures funds from 2000-2016.

The research found that portfolios perform better when CTAs are included. For example, the performance of a traditional asset mix of 60% bonds and 40% equities is enhanced with the addition of CTA strategies, which may increase the return and risk-adjusted returns by lowering volatility as well as considerably lowering and shortening drawdowns.

The paper also found that the largest drawdown – or peak-to-trough decline – for managed futures funds since 2000 was less than a quarter of the scale of the comparable drawdown for global equities (-11.63% versus -53.65%). Particularly noteworthy in this context was the sector’s collective performance at the height of the global financial crisis - all CTAs in the Societe Generale managed futures database reported positive returns in 2008, and many were up by more than 30% that year.

The AIMA/SocGen research comes as investor interest in managed futures funds is on the rise. AUM in the subsector has grown nine-fold since 2000, reaching $340 billion in at the end of 2016, and managed futures funds recorded $10.4 billion in net inflows – the largest of any hedge fund strategy – in the second quarter of 2017. 

The paper contends this interest is driven by the sector’s liquid and transparent nature and the potential for uncorrelated returns. The most common trading strategy across the managed futures sector is trend-following, which now accounts for approximately half of the sector’s assets under management. 

At the same time, consistently positive returns have been elusive. HFR’s HFRX Systemic Diversified CTA Index down -0.74% for the year through August, while the average hedge fund as measured by the HFRX Global Hedge Fund Index is up more than +4.2% for the same period. 

“[This research] will help investors better understand managed futures and will go some way to dispel the idea they are black boxes that can’t be understood,” said AIMA CEO Jack Inglis in a statement. “It provides insight into the criteria that need to be considered when investing in managed futures, especially as the number of strategies, exchanges and execution techniques mean no two are the same. 

“The continued inflows into CTAs mean they are becoming a more ‘mainstream’ strategy on the radar of institutional investors,” added Societe Generale Prime Services’ executive Tom Wrobel. “As performance has been mixed this year, consolidating all of these findings makes it easier to follow and understand the CTA space for those interested in exploring it as a strategy.”

The full study can be downloaded here.

AIMA is a global alternative investment industry association with 1,840+ corporate members in more than 55 nations. It is the co-founder of the well-known Chartered Alternative Investment Analyst designation, and its manager members collectively manage more than $1.8 trillion in assets worldwide.


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