Thursday, June 2, 2016
Managed futures - cannot find what works
The managed futures hedge fund style started out the year on positive note with strong performance that was uncorrelated with the sharp declines in equity markets. Since the equity recovery, managed futures has not been able to find a path for continued positive returns.
Managed futures, as measured by the SocGen CTA index, has posted three down months in a row. It underperformed equities, bonds, and commodities this month. With a sharp market reversal on lack of action by the Bank of Japan at the end of April, it was hard for those managers focused on trends to find opportunities. With bonds flat-lined, equities mixed, currencies trying to discount further Fed action, and commodities only showing localized moves, there were only limited opportunities for diversified systematic global macro managers. Last month there were commodity gains but not enough exposure on the books of managers. This month there were just limited trading opportunities with further declines in volatility.
Is this surprising? My impression is that falling volatility, some sharp market reversals, and limited intermediate trends have made for a challenging environment over the last 90 days, but either through leverage adjustments or risk management there would have been more downside control and some better return results. There has been good performance with shorter-term traders and some dynamic managers, but 2016 needs a jolt to wake-up this weak performance. Whether a central bank or geopolitical surprise, a shock may be necessary to get out of this performance torpor.