Alternative investment manager Campbell & Company made the case for allocations to managed futures in a paper titled: “A Case Study for Managed Futures.” In it Campbell points out the strong performance of managed futures in the third quarter and notes that Q3 performance, “reveals some of the most compelling attributes of managed futures.”
Critics might argue that performance over recent years reveals the least compelling aspects of managed futures, but the critics always seem to forget that upwards of 70% to 100% of investors’ allocations are already in traditional investments so they should do just fine, portfolio wise, when managed futures are struggling and equities are soaring. However, they are left unprotected when we see the type of volatility that we did in October of this year.
Campbell’s paper notes, “During the third quarter, there were very few profitable opportunities for long-only investors. Each of the four major asset classes finished the quarter lower (see chart below), with small declines for equity indexes and fixed income and larger declines for commodities and foreign exchange. “
The paper points out that managed futures’ ability to go long or short provides diversification and allowed the strategy to perform well this past quarter by shorting global indexes. The Newedge CTA Index and its Trend Index gained 4.9% and 7.9%, respectively.
“When considering the shorting ability of managed futures funds, many investors tend to focus specifically on the equity sector,” it stated. “However, the best opportunities in the third quarter were actually found elsewhere. “
Campbell best performance came in the Foreign Exchange and commodities sectors (see chart below).
We noted here in the past that despite a difficult period for managed futures over recent years, commodity specific managers performed extremely well providing diversification not only from traditional investments but within the managed futures space as well.
The paper concluded, “The common theme among the features highlighted here is flexibility: Managed Futures strategies can invest long or short, in both traditional and non-traditional asset classes, in multiple regions. This flexibility allowed many programs to post strong results in the third quarter, despite the pullback in global markets.”