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Home>Alternative Investments>Alternatives Investing>Category Overview: Managed Futures Funds

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Category Overview: Managed Futures Funds

Headwinds persist for managed futures funds.

Philip Guziec, CFA, 07/11/2013

Challenging conditions have dominated the managed futures category since 2008. 

The lack of long-term sustained price trends in various asset classes since 2008 have prevented managed futures fund from replicating their 2008 success. In 2008, the category returned 8.3% on average, when virtually all other investments tanked. But the category has lost money since.  The first half of 2013 was no exception. The category dropped 1.9% on average, on the heels a 7.4% decline in 2012.  Despite this poor performance, the category saw inflows of $652 million over the first five months of 2013, as managed futures strategies are not correlated to stocks or bonds over the long term. Also, three new funds were launched in the first half of 2013, bringing the total to 52 offerings.

The category's poor performance since 2008 isn't all that surprising. Most trend-following strategies take long or short positions in a diversified basket of futures contracts based on six- to 12-month upward or downward price trends. The short-term, risk-on/risk-off reactions by investors to global economic news has caused price trends sharply reverse, resulting in losses for trend followers. 

Investors seeking smoother performance while maintaining the diversification benefits of managed futures should consider a fund that incorporates nontrend or short-term trend strategies. ilver-rated AQR Managed Futures Strategy AQMIX, which incorporates a shorter-term (one- to three-month) trend component, and gained 3.0% in 2012 followed by 3.4% in the first half of 2013. 361 Managed Futures Strategy AMFQX, up 11.2% in 2012 and 3.5% in the first half of 2013, follows a predominantly countertrend (mean reversion) strategy.

Unfortunately, managed futures funds are not cheap, particularly the subadvised multi-manager managed futures funds, whose expense ratios do not include the underlying managers’ management and performance fees.  The all-in 1.25% expense ratio of AQR Managed Futures Strategy is hard to beat.



Philip Guziec, CFA, is Morningstar's derivatives investing strategist. He leads Morningstar's OptionInvestor service, which applies Morningstar's fundamental research methodology and fair value estimates on 2,000 stocks to uncover option investing opportunities. Guziec joined Morningstar in 2003 after a career as an engineer and management consultant. Learn more about OptionInvestor.

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