Many will argue that of course there will be differences, but the size of these differences will not be economically meaningful because all of the benchmarks closely track each other. This is not the case as seen in our first graph. There can be wide differences in cumulative return. The differences or spread usually get much large when there is a crisis period. Those indices that have a high trend tilt or more crisis beta will move ahead of the other benchmarks.
The difference between the high and low monthly performance of the benchmarks can be substantial. The dispersion can be over 3% in a single month. This is not the difference between managers but differences in the benchmarks.
The cumulative effect of these differences can be huge. In the third graph, the average of the managed futures indices is presented in the blue shade. Much of the return advantage is diversified away and the result is flat performance. If an investor received the worst performance of any benchmark each month, the net result is a huge drawdown. Similarly, if an investor was able to be in the best performing index every month, the performance would have made him a superstar fund manager. This is an exaggeration, but it illustrates the value of picking the right managers.