Due to the reputation futures have for performing well in uncertain times, investors may be examining if now is the right time to look at managed futures with an unsettled election just months away.
"With the upcoming election, one question investors may wish to ask is whether managed futures trend followers have historically been able to navigate the election risk," said Robert Sinnott, co-portfolio manager of the Natixis ASG Managed Futures Strategy Fund. "If we look to the SG Trend Index as representative of such managers, we see that in the four presidential elections since the index inception in 2000, the average November return has been more than 5%, and all those election-year November returns have been positive."
This compares to an average November return of 1.4% and an average monthly return of 0.6%, said Sinnott, adding, however, that the sample size is still small and that four historical election samples should not be held as indicative of what may happen in November this year.
"Surprises happen, and if markets move against trend, November 2016 may be the first such negative return presidential election for managed futures," Sinnott said. "Historically, at least there is no evidence that election months are atypically challenging for the strategy."
However, futures have seemed to have shown resolve when the markets get rough. A report last year by Credit Suisse showed managed futures had a 9% return in 2008 and 2009 — while global equities struggled — losing 44%.
Frances Hudson, global thematic strategist at Standard Life Investments, however, said while it would be nice to think that by buying a future six months out can help dodge particular event risks that occur within the six months — such as the U.S. election — it does not work that way.
"Managed futures fall into the alternative investments category," Hudson said. "Portfolio managers combine futures contracts on various asset classes and instruments in ways designed to diversify risk and deliver absolute return. Risk reduction comes from the negative and imperfect correlations between the various sources of risk."
Hudson said this this generally works, except at times of extreme market stress when correlations can converge, leaving fewer hiding places from risk for those with long positions. She also points out the success of managed futures strategies varies considerably, with year-to-date performance of the 50 or so managed futures funds quoted on Bloomberg ranging from -9.23% to +16.37%.
While some point to the fact that managed futures outgained the S&P 500 in the immediate aftermath of Brexit, Hudson said such comparisons are not really valid.
"The average performance of managed futures during the Brexit period should not be compared to a single equity index, or even the futures on that index," Hudson said.
Kevin Jamali, portfolio manager of the Catalyst/AuctosMulti-Strategy Fund, agreed that while at times investors have seen inverse correlations between managed funds and stocks, investors should not time their investments based on up and downs in the stock market when it comes to managed futures.
"Managed futures as an asset class provide a great diversification tool for investors as they are non-correlated to traditional asset classes," he said. "Another added benefit is that sometimes they tend to be inversely correlated during periods of crises such as 2008, January 2016 and Brexit. Most investors don't fully understand how this asset class works and thus don't truly comprehend its true benefits — particularly the lack of correlation."
He said many think this class is inversely correlated, wherein managed futures will make money when stocks go down or vice versa, and attempt to jump in after panic has already set in — but they have probably missed the opportunity to take advantage.
"A great example is when there were massive inflows into managed futures in 2009 and in mid-February of this year," Jamali said. "Many of these managed futures had already seen significant gains and were near their all-time highs. Thus, it is paramount that investors not try to time such investments; it would be best to always include an allocation in one's portfolio for purely diversification purposes."
Jamali added not all managed futures are created equal, and investors should study and find what's right for them.
"They should look for funds that they are comfortable with based on volatility, risk-adjusted returns and ability to manage down side risk," Jamali said.