Managed Futures – The latest hot fund?

Managed Futures have been generating alot of buzz in the investment world due to their stellar performance in 2008 when the worldwide markets tanked. According to Eurekahedge, Managed Futures returned 16.88% in 2008 when the MSCI World was down 42%. Many of the well-known funds have returned more than 30%.

At a recent wealth management forum, Managed Futures was heavily promoted as an alternative to hedge funds. 1 of the main selling point was that many hedge funds impose gatings whereby redemption was temporary suspended or prolonged. Managed Futures, being in the highly liquid futures market, did not encounter such problems. Another selling point was the performance in 2008 where even hedge funds made double digit falls, although much lower than the fall the traditional equity markets.

Although Managed Futures can perform in a rising or falling market, it will not make money in all market conditions. As these funds are trend following, it might under-perform in a sideway market without any trends. The good performance in 2008 was due to the huge downtrend, especially after the Lehman Brothers’ collapse. Up to March this year, many of them have not been performing. Equities, on the other hand, have rallied up to 30% in from the low in early March.

The historical returns of Managed Futures have been quite impressive. Many of them have have double digit annualised compounded returns over more than 10 years, compared to the negative returns in equities market after the collapse in 2008. However, historical returns is not indicative of future returns. The market always comes up with unimaginable ways of pricking bubbles. I hope no bubble would form in this asset class. Keep our fingers crossed.

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Tags: Alternative Investments