Futures Are Looking Brighter
During 2008, managed futures funds outperformed all other hedge fund strategies. Convertible arbitrage was down -31.79 percent at year end; emerging markets, -30.38 percent; event driven, -16.91 percent; and fixed-income arbitrage was off -27.72 percent, just to name a few. Managed futures funds were a bright spot, however, returning 18.23 percent on average.1
Despite this outstanding performance, investors have been slow to embrace these funds mainly because they view managed futures as highly sophisticated investments. Trading transactions are based on complex mathematical models often referred to as black boxes because so few people understand them. That fund managers can find it difficult or impossible to explain these investments to clients hasn’t helped.
Investors’ views are changing, however. According to BHA research, during the past 14 months investors’ appetite for managed futures has been increasing. Analysts plotted statistical data collected from investors that had open mandates for hedge funds from January 2009 through February 2010, and it clearly showed an upward trend. During February 2010 alone, 40 percent of all hedge fund investors interviewed by BHA analysts were seeking managed futures opportunities; this is an 11 percent increase from the previous month.
Given the unstable nature of today’s markets, investors are seeing managed futures as a way to hedge their bets and diversify their holdings long term. As the 2008 performance of managed futures showed, these funds are traditionally uncorrelated to U.S. equities. Additionally, investors are looking to managed futures for liquidity and transparency, since these funds trade commodities, currency, and other liquid assets, and they are regulated by the Commodities Futures Trading Commission (CFTC), which performs audits periodically.
As institutional investors build their portfolios in 2010, BHA expects more to embrace managed futures funds.
1 MarketFolly.com, “2008 Hedge Fund Performance Numbers: December & Year-End,” January 20, 2009.