One of odd things about being in an investment which can do well when markets are down is that you find yourselves at times cheering the market to go to zero. That didn’t play well at dinner parties in 2008, and is likely to continue to raise some eyebrows when people start with a fresh round of “tough day in the markets today, huh?” conversation openers. Our go-to response?
“Sure was tough… we hope they go to zero.”
For those from the world of traditional investing, this can be a bit unsettling and cuts a lot of conversations short. “Go to zero? What the %^#$?”
While we don’t actually want market to go all the way to zero (we still want a functioning society and all of that), managed futures has been an asset class in search of a crisis for much of the past three years bumbling around between down slightly and even. A nice crisis sending markets into sustained downtrends would be a welcome sight for most in the managed futures world, and would go a long way to pushing managed futures returns back up to their historical averages.
As we have laid out before, managed futures tends to do well during market crisis periods because of their ability to go short global markets. In 2008, managed futures programs found themselves short nearly every type of market not considered a safe haven, be it stock indices, energies, foreign currencies, metals, grains, or softs. Fast forward to the past few weeks, and we’ve seen several managed futures programs start to initiate such short positions in markets like US and non-US stock indices, energies, foreign currencies, and metals (grains have oddly seen strength recently).
Quite simply, we’re cheering the markets to zero because the lower they go in this move down, the more money our clients stand to make, and the happier we are. Of course, past performance is not necessarily indicative of future results and there are clients and programs and positions which may lose money in an extended move lower. But generally speaking, such down trends work to the benefit of the managed futures space in our experience.
So for now we’ll be cheering… “Go to Zero!”
PS – we’ll see if our uncanny ability to make the market do exactly the opposite of what we write about holds up again. We half-jokingly expect stocks and crude oil to be up about 3% next week just because we had the audacity to say we want them to go lower.