Emerging CTAs and Managed Futures Trends
Emanuel Balarie, May 8th, 2009
Growing Interest In Managed Futures
By Emanuel Balarie
http://www.balariecapital.com/
After stealing the show in 2008 with a combined return of 13.4%, the managed futures sector posted a down quarter to start 2009. Through March, the Barclay CTA index was down 1.46%. While the decline in this sector was broad based, trend followers had an especially difficult time trading the choppy markets. But even with a declining sector, there were some CTAs that were able to post positive numbers for the first quarter.
Growing Interest in Managed Futures
In last quarter's edition, I boldly stated that "2008 will be known as a break out year for managed futures". After a down quarter, do I still believe this to be the case? I do. In fact, my assertions was not necessarily based on the positive returns of 2008, but rather on the non-correlated returns and other unique attributes that the asset class brings to investors. This was reaffirmed by the continued interests we are seeing from "new to managed futures" investors.
One way that we gauge this is by looking at the keyword searches that have recently come to our site. Over the past few months, we have seen an increase of searches that imply that investors are looking for additional knowledge on this asset class. We have also received requests from several investment advisors and brokers who are conducting research on behalf of their client base. The consensus opinion is that they are looking for investment products that can generate returns in all types of market conditions and that are non-correlated with their equity investments.
Implications of Increased Interest
But what are the implications of this increased interest?
For those in the industry, it is quite simple. It means that the assets under management will likely continue to grow at an exponential pace. For those in sales, it means that they will now have a much easier time selling the asset class. For CTAs, it means that there are now more people that will be willing to allocate to this sector, and hopefully their specific programs.
There will also likely be an increase in the number of Commodity Trading Advisors. One of the services that Balarie Capital Management offers is that we work with start-up or emerging CTAs. Over the past few months, we have seen an increased interest in our start-up CTA services. The traders that we have spoken with have a wide variety of backgrounds. Some are non-professional traders who have a dream of becoming a CTA and others are professional traders, with a great pedigree, that are looking to finally start their own shop.
The addition for these new CTAs can be both positive and negative for the industry. It is positive because it brings onboard a new round of talented managers. It is also positive for the investors because they have a greater choice for investments. However, one negative aspect will be that there will be a slew of traders who are professional by designation, but lack experience in terms of trading and risk management. Indeed, emerging CTA after emerging CTA has shown that posting numbers out of the gate is one thing...and maintain those numbers is totally different. Investors should be cautious about allocating funds with an inexperienced trader who has a few months of stellar performance.
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. THERE IS SIGNIFICANT RISK OF LOSS WHEN TRADING FUTURES AND OPTIONS. ALWAYS REVIEW THE CTA's DISCLOSURE DOCUMENT BEFORE INVESTING IN ANY MANAGED FUTURES PROGRAM.