There has been some panicked talk in the managed futures world regarding recent performance. Both 2011 and 2012 were down years and after a promising start to 2013 reversals thanks to Federal Reserve Board policy, or perhaps more accurately fear of a potential minor shift in Fed policy, led to sharp reversals in fixed income and equity index markets wiping out months of profits.
Personally I think much of the worry and contemplation is actually coming from outside the industry. These are the folks that have declared trend following dead too many times to list but who actually never believed in it in the first place. They are still peddling the efficient market hypothesis (EMH) to anyone who would still believe in it. To believe in EMH you really can’t believe in trend following so it is no surprise where they are coming from. Every time trend followers go through a rough patch these folks believe the financial world has returned to form.
I don’t like when managers or brokers use recent performance as an excuse to go in a shell because as anyone who understands knows, after a drawdown is the time to get in, not after solid performance. What chance do trend followers have if you take that point of view? Contrary to popular myth, many investors are intelligent and won’t get into managed futures after months of strong returns because they do understand a drawdown will follow.
Today some good news has come out and it shows retail folks understand this. Direxion announced that its Indexed Managed Futures Strategy Fund (DXMAX) passed $100 million in assets under management mark. The fund launched in February 2012 and has shown impressive growth.
Also the Newedge CTA Index closed the first six months of 2013 up 1.03%, despite a decline of 1.5% in June. The reversals of May and June have led to solid trends in both fixed income and equity indexes, which could set up for a solid second half of the year.
Also significant in Newedge’s numbers is the strong performance of its short-term Traders Index, up 3.75% through June. Short-term CTAs have not always provided the positive performance promised in difficult trending periods but so far they have in 2013.
While helpful, I believe it is hard to gauge CTAs vs. these various indexes because there is more diversity in the managed futures space then it is given credit for. Each manager has unique attributes and you cannot compare them to an index the way you may compare a long-only mutual fund against the S&Ps.
Still, it shows that now is not the time to sit on the sidelines if you are in the business of managed futures.