In managed futures, people like to tout exposure to commodities. Now, at least one firm is betting that excluding all commodities could be the recipe for success. InvestmentNews reports:
By leaving commodities out of the SSgA SSARIS Managed Futures fund altogether, the fund should have even lower volatility, according to SSgA. In a prospectus filed with the Securities and Exchange Commission last Friday, the company also said it would be targeting futures contracts with low daily standard deviation. Marie McGehee, a spokeswoman for SSgA, declined to comment on the filing.
The downside of leaving out commodities could be lower returns. While commodities tend to have the highest volatility, they’re also a potential source of big returns for managed-futures funds, which basically are trend-following strategies.
It was that second paragraph that stuck out to us most. See, as an Introducing Broker that works with a wide variety of CTAs in the emerging space, we’ve been looking at the distinction between programs with hefty commodity exposure, and those that tend to stick to financials of some form. As it turns out, the idea of biasing exposure away from commodities is nothing new. In fact, this strategy has been embraced by some of the largest players in the industry. Take Winton, for instance:
They’re already gravitating away from the commodities that gave managed futures their name. In some ways, one might interpret this to mean that the “new” strategy isn’t that new at all, and may just come close to replicating titan performance. But even then… is that the kind of performance managed futures investors really want today? We took a look at the average negative and positive monthly returns for some of the most well-known CTAs out there, and here is what we found:
(Disclaimer: past performance is not necessarily indicative of future results.)
These guys may have the big names, but they certainly don’t have the same kind of big performance they made their names with anymore. For a mutual fund strategy, which, as we’ve written about in the past, will frequently cannibalize their own performance with excessive fees, such diminishing returns, in our opinion, are likely less than appealing. But, hey – best of luck.