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Posted by

Carlton Chin, CFA
Portfolio Manager & Head of Research, CARAT / Adamah Capital LLC,
New York, NY

Insightful Contributor
STREET Cred - 214

The performance of the Managed Futures industry and CTAs (Commodity Trading Advisors) is generally uncorrelated to the stock market and other hedge fund strategies. The year 2011 has seen most CTAs flat- to-slightly down, along with most other investment strategies and asset classes.

Here is a sampling of several Managed Futures industry benchmarks through the end of November:

• Barclays CTA Index -3.1%
• Barclays BTOP 50 Index -4.0%
• NewEdge CTA Index -4.7%
• NewEdge Trend Sub Index -8.4%
• Investable Managed Futures Index 0.0%

Managed Futures Characteristics

Professional futures traders have shown that positive returns can be earned in the futures markets. Interestingly, many of the approaches used by professional traders are not very easy for small investors to follow. For instance, some futures traders might say, “Buy high, sell higher,” rather than “Buy low, sell high.”

Here are some other notes on Managed Futures, diversification and its typical return profile:

• Most futures strategies attempt to capture “fat-tails.”
• As a result, these strategies have small losses, but large gains.
• The return distribution for futures programs sometimes requires patience while waiting for large trends to be captured.
• Futures strategies typically capture “black swans” and outliers.
• Similar to a strategy of being “long options,” while hopefully minimizing costly option premiums.
• Managed Futures returns are generally uncorrelated to stocks.