- Advertisement -
- Advertisement -

Related

AIMA Highlights Benefits of CTAs

Report: Alternative Fixed Income

- Advertisement -

Stockholm (HedgeNordic) – Fresh research shows that investor portfolios containing managed futures funds perform better and exhibit less risk than those without them. Despite occasionally experiencing periods of underperformance, managed futures funds can provide competitive risk-adjusted and non-correlated returns coupled with limited drawdowns.

Managed futures strategies represent one of the main alternative investment strategies, accounting for roughly $340 billion in total AUM. Even though the CTA industry has been dominated by systematic trend following, all sub-investment strategies in the space have one common feature: they aim to generate absolute returns through active trading in global futures (and foreign exchange) markets.

In an educational paper titled “Riding the Wave,” the Alternative Investment Management Association – the global representative of alternative investment managers – together with Société Générale explain the role CTAs play in investor portfolios, as well as attempt to help investors make better informed decisions about the CTA sector.

AIMA and Societe Generale show that the performance of a traditional 60/40 portfolio, which has a 60% exposure to equity markets and a 40% exposure to bonds, can be enhanced with the addition of CTA strategies. Specifically, capital allocation to CTAs can increase returns and risk-adjusted returns (due to lower volatility), as well as considerably lower and shorten drawdowns. The paper shows that the largest drawdown, or the peak-to-trough decline, for CTAs since 2000 was less than one-fourth of the scale of the largest drawdown for global equities (-11.63% versus -53.65%).

Managed futures strategies perform particularly well relative to other asset classes in times of market stress. In times of market crisis, market participants become synchronised in their actions, which favours trend-following strategies. For instance, all CTAs in the managed futures database maintained by Société Générale reported positive returns in 2008, with many of those CTAs returning in excess of 30%. For another example, the CTAs included in the Nordic Hedge Index (NHX) returned 16.15% on average in 2008. Most importantly, AIMA and Société Générale find evidence that CTAs are normally able to benefit from having a positive correlation with equity markets in bull markets, and having a negative correlation in bear markets.

According to AIMA CEO Jack Inglis, the educational paper is designed to “help investors better understand managed futures and will go some way to dispel the idea that they are black boxes that can’t be understood.” To view the paper, please click below:

 

Picture: (c) Nata-Lia—shutterstock.com

Subscribe to HedgeBrev, HedgeNordic’s weekly newsletter, and never miss the latest news!

Our newsletter is sent once a week, every Friday.

Eugeniu Guzun
Eugeniu Guzun
Eugeniu Guzun serves as a data analyst responsible for maintaining and gatekeeping the Nordic Hedge Index, and as a journalist covering the Nordic hedge fund industry for HedgeNordic. Eugeniu completed his Master’s degree at the Stockholm School of Economics in 2018. Write to Eugeniu Guzun at eugene@hedgenordic.com

Latest Articles

Infrastructure’s Role in Europe’s Transformation

As Europe accelerates its transition toward a greener and more digital future, infrastructure investment has become a cornerstone of this transformation. However, a funding...

Capital Four Reaches Hard Cap for Fifth Private Debt Vintage

Copenhagen-based credit specialist Capital Four has reached the hard cap of €3 billion for its fifth private debt vintage, Private Debt V – Senior....

Othania Introduces UCITS Version of All-Weather Strategy

Danish boutique asset manager Othania has assumed management of the UCITS-structured fund ØU Invest Balance KL, which will be rebranded as Othania Stabil UCITS...

Hilbert Expands Asset Management Arm

Hilbert Group, which operates an asset management business specializing in hedge funds focused on digital assets, has completed the acquisition and integration of digital...

Elementa Reaches All-Time High on 10th Anniversary

Elementa, the long/short equity fund managed by Marcus Wahlberg, was named “Rookie of the Year” at the 2015 Nordic Hedge Award, recognizing it as...

Private Markets and Equity Exposure Top Priorities for Nordic Investors

Nuveen has published the results of its annual Global Institutional Investor Survey, revealing that 58 percent of the 40 surveyed Nordic investors plan to...

Allocator Interviews

In-Depth: Megatrends

Voices

Request for Proposal

- Advertisement -