Strategy Focus Report Managed Futures
Michael Cicero, July 8th, 2008
Strategy Focus Report: CTA/Managed Futures
by Michael Cicero, CAIA ,Vice President of Channel Capital Group Inc. July 8, 2008
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Overview: CTA/Managed Futures
The HFN CTA/Managed Futures Average (CTA/MF Average) has rebounded strongly in the last twelve months (LTM) after meandering through a period of meager performance since 2002. Most recently this strategy has excelled as a result of a commodity price boom due in part to lax global monetary policy and increased volatility in equity and credit markets.
Historically, CTA/MF products appear to perform very well during times of distress. Commodities generally offer a hedge against the negative effects of rising inflation and as a result have a slightly negative correlation to the general stock and bond markets. The strategy seems to do well when the overall markets are slumping and in prolonged periods of increased volatility.
Recent Performance
On an annual basis, the strategy has only outperformed the HFN Hedge Fund Aggregate in two years since 2001. CTA/MF managers outperformed the HF Agg in 2002 and 2007 returning 16.61% and 12.47% respectively, while the HF Agg returned 5.74% and 10.55%. 2002 and 2007 share similar capital market characteristics of increased volatility, falling equity markets, a sliding fed funds rate and inflationary concerns.
The periods when the CTA/MF strategy outperform tend to be so positive in contrast to the average hedge fund product or equity index that those periods end up driving performance when the benchmarks are compared on a cumulative basis over various time periods. CTA/MF managers have outperformed the HF Agg and the S&P 1200 in the last 12, 24 and 36 month periods, returning 20.97%, 24.47% and 42.36%. Since 2001, the CTA/MF Average has a cumulative return of +101.50% compared to the HF Agg and the S&P 1200 which returned +112.23% and +21.78%, respectively.
In the sub-styles and securities which CTA/MFs invest, they are more influenced by geopolitical issues, natural disasters and speculation than most strategies in the HFN database. With a median standard deviation/downside deviation of 17.32/3.05% since 2001 and 18.91/3.02% over the LTM it is surprising that the strategy has been able to remain competitive, if not outperform, on a risk adjusted basis. When comparing the Averages by the Sharpe and Sortino ratios the CTA/MF managers outperform the S&P 1200 in nearly every time period and percentile group.
The remainder of the report breaks down the asset flows and performance trends within the subsectors CTA/Managed Futures funds invest.
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