Wednesday, August 3, 2016

Liquid alternatives move higher after early pullback

Tracking a broad set of liquid alternative managed futures funds provides good daily information on style performance. The equal weighted average of these managers showed a sell-off in the first part of July when equities started see better performance. There was a switch to risk-on behavior which traditionally has been negative for managed futures. The end of the month showed strong gains after the Fed FOMC announcement and the tapering of equity gains. Managers were able to exploit opportunities outside of equities.

The dispersion with managers continued in July. There has been limited cross-over with performance among managers. Averaging across managers that have large dispersion and low correlation dampens the perceived value of managed futures. This dampening effect will be larger for hedge fund styles where there is more return dispersion.  We have noted in other posting that we expect more dampened performance in August given the mixed sector trends.

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