CTA’s and Managed Futures remain a relatively unknown corner of the investment universe. Perhaps that is a mistake the investing public should not be making. Close inspection of these strategies shows very low volatility (both good and bad vol) and phenomenal returns. The following chart shows one of the worst 10 year periods in the history of the stock market, however, hedge funds and CTA’s have performed extremely well. In fact, the performance of CTA’s and managed futures funds over this period is particularly incredible – and superior to that of the average hedge fund. The low volatility and lack of substantial drawdowns (negative vol) shows that, in aggregate, these fund managers are adding an extraordinary amount of value to investor’s portfolios:
A closer inspection of the returns, and more importantly, the risk adjusted returns, shows a similar story. While your average hedge fund was down 16% in 2008 the average CTA/MF fund was UP 11%. This isn’t an anomaly. In fact, CTA’s and MF funds didn’t post a single negative year during this entire period. CTA’s and MF’s posted compound annual gains of 8.65% vs 8.45% for average hedge funds and -1.65% for the S&P 500. More importantly, they posted very strong Sortino and Sharpe ratios in this difficult investing environment. These funds might be overlooked for now, but with performance like this it’s unlikely that they’ll be overlooked for long….
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.
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