Thursday, April 28, 2016

Managed futures - something going on with performance

It is always worth monitoring the long view with trends. Beyond the last quarter or year, there are return patterns that show longer-term changes in style performance. Take a look at managed futures. There was a long period for which it was out of style, but that has changed markedly. (Saying a strategy is out of style is the nice way of saying it has performed poorly.  In style, means it is doing well and investors are chasing performance.) 

We fitted a long-term linear trend through the performance curve of the SocGen managed futures index. The times of strong or poor performance from trend are obvious by looking at periods above or below the trend line. A fitted polynomial through the data can find periods when the slope of returns was rising or falling and provide a smoother view of performance.

There are clearly long periods of strong and poor performance. There is an uptrend in performance through the Financial Crisis, but the slope turned down during the  post-crisis or QE period. Nevertheless, the second half of 2014 marked a new period of performance. This new era is completely different than past periods. (We looked at log value and see the same pattern.)

Of course, we fitted the entire period which would not be available to investors, but the story holds. If an investor looked at holding a managed futures basket when the non-linear curve slope is rising for the index and selling during periods of declining slope, you would have have positive style tailwinds. This is not a model,  but may be a good rule of thumb. 

No comments: