Key Takeaways
- • Managed futures funds generated positive returns in 2008 while equities plummeted, demonstrating their non-correlated nature to traditional stock markets, but have underperformed significantly since with broad managed futures indexes posting negative returns from 2011-2013 and five-year average returns of -2.47% annually through mid-2015.
- • Central bank stimulus and suppressed volatility have eliminated the sustained trending conditions that managed futures strategies depend on to generate returns, according to Matt Osborne of Altegris Advisors, limiting opportunities beyond long-only equity positioning.
- • Depressed short-term interest rates have further hampered managed futures performance, as these funds typically hold cash positions and historically relied on interest income as a meaningful return component, according to Rob Sinnott of Natixis ASG Managed Futures Strategy Fund.
- • Industry professionals identify "rays of hope" for category recovery, suggesting the structural headwinds facing managed futures may be temporary rather than permanent, though near-term performance remains challenged relative to equities' five-year rally.
Summary
The managed futures category faces persistent headwinds despite historical evidence of its diversification benefits. While managed futures funds posted gains in 2008—a year equities markets collapsed—the category has struggled substantially since. According to Morningstar data, five-year returns through mid-2015 averaged negative 2.47% annually, far underperforming traditional equity indices that recovered from 2008 losses to reach peak levels.
Matt Osborne, managing director of Altegris Advisors, attributes the recent slump primarily to coordinated central bank intervention aimed at economic stimulus. By dampening market volatility, these policies have eliminated the trending conditions that managed futures strategies require to generate returns. "Managed futures funds rely on trends, up or down," Osborne explains. "Other than going long in equities, we haven't seen many sustained trends recently." This structural challenge explains why broad managed futures indexes have posted generally negative results from 2011 through 2013 and beyond.
Rob Sinnott, portfolio manager at the Natixis ASG Managed Futures Strategy Fund, identifies a secondary headwind: suppressed short-term interest rates. Managed futures funds typically maintain cash positions and historically derived meaningful return contributions from interest income on these holdings. With rates held near zero by central banks, this income stream has largely evaporated. Sinnott cautions against pessimism, noting that "if short-term interest rates had been higher, recent results would have been closer to historic norms. The sky isn't falling for managed futures."
Despite the challenging backdrop, industry participants see potential for category recovery. Osborne points to emerging "rays of hope" for managed futures performance in the near term, suggesting that current market conditions may represent a cyclical challenge rather than a structural impairment to the strategy's viability. The category's demonstrated uncorrelation to equities—evident from 2008 performance—remains a valuable portfolio diversification characteristic awaiting normalization of the trend and interest rate environment.
Matt Osborne, managing director of Altegris Advisors, attributes the recent slump primarily to coordinated central bank intervention aimed at economic stimulus. By dampening market volatility, these policies have eliminated the trending conditions that managed futures strategies require to generate returns. "Managed futures funds rely on trends, up or down," Osborne explains. "Other than going long in equities, we haven't seen many sustained trends recently." This structural challenge explains why broad managed futures indexes have posted generally negative results from 2011 through 2013 and beyond.
Rob Sinnott, portfolio manager at the Natixis ASG Managed Futures Strategy Fund, identifies a secondary headwind: suppressed short-term interest rates. Managed futures funds typically maintain cash positions and historically derived meaningful return contributions from interest income on these holdings. With rates held near zero by central banks, this income stream has largely evaporated. Sinnott cautions against pessimism, noting that "if short-term interest rates had been higher, recent results would have been closer to historic norms. The sky isn't falling for managed futures."
Despite the challenging backdrop, industry participants see potential for category recovery. Osborne points to emerging "rays of hope" for managed futures performance in the near term, suggesting that current market conditions may represent a cyclical challenge rather than a structural impairment to the strategy's viability. The category's demonstrated uncorrelation to equities—evident from 2008 performance—remains a valuable portfolio diversification characteristic awaiting normalization of the trend and interest rate environment.
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