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A Wealth of (Managed Futures) Common Sense

If you haven't had chance to check out the work of Ben Carlson over on his blog, “A Wealth of Common Sense,” we highly suggest it. We've written about his thoughts and ideas a couple times (here and here) and we couldn't help but notice the subject of his musings on doing what works for you in his latest post, “The Importance of Intellectual Honesty in the Markets” is of Managed Futures.

“Managed Futures is a trend following strategy that trades futures contracts both long and short depending on the direction of the markets. The strategies are typically diversified across stocks, bonds, interest rates, commodities and currencies and follow a systematic approach. Also called CTAs (commodity trading advisors), these funds got a ton of attention following the 2008 crash because they were one of the few places to earn positive returns when stock markets around the globe sold off anywhere between 35-55%.

I looked at the Credit Suisse Group AG (ADR) (NYSE:CS) Managed Futures Index going back to 2008 and compared it to the annual returns on stocks, bonds and a 60/40 stock/bond portfolio through June of this year:

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(Disclaimer: Past performance is not necessarily indicative of future results)
Chart Courtesy: A Wealth of Common Sense

But it wasn't just his feature of explaining the asset class of Managed Futures, it's about how investors tend to chase performance, getting in at the highs and out at the lows. As Ben puts it:

“The biggest problem most investors face is that they invest in something like managed futures after they see the impressive results it had in 2008. Then they bail when it falters. Or they change their strategy to a low cost indexed buy and hold approach after seeing how well it's done since 2009. Once again, many will bail during the inevitable down period.”

Which fits quite nicely with our “In at the Highs out at the Lows” Managed Futures chart.

(Disclaimer: Past performance is not necessarily indicative of future results)
Chart Courtesy: In at the Highs, Out at the Lows

Back to Ben Carlson:

We couldn't have said it...


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