Managed Futures Have Banner 2022 but Can They Sustain Their Recent Good Form?

I have something of a soft spot for CTAs. First, I’m an advisor to one in New York – I help them with their marketing and business development efforts. And second, I used to trade food and fiber commodities on the NYBOT (before it went fully electronic in 2008) so I’m pretty familiar with the nuances of these strategies.

So, I’ve enjoyed seeing a lot of articles in the past few weeks highlighting how well managed futures types did last year – the average constituent of the Barclay CTA Index delivered +7.11% returns in 2022. That’s the fourth consecutive year of the index being in the green, something that hasn’t happened since before the Global Financial Crisis.

When I was in Miami at the end of January / beginning of February, a lot of the CTAs that I spoke to seemed bullish about this year as well. You have to take that with a pinch of salt because most investment firms believe in their ability to make money – it would be weird if they didn’t –  but the prevailing wisdom seems to be that trend followers, which make up a large percentage of the products in this corner of hedge fund land (but not all, something that investors would do well to remember) should continue to find trades in 2023 that will deliver positive P&L and there is enough going on in global markets for nimble discretionary traders to do the same.

Investors are taking notice. Managed futures was one of only two primary categories tracked by eVestment that saw inflows last year – $6.24bn in extra dollars found its way to CTAs, after they pulled in $12.98bn in 2021. But there is an often-quoted frustration in the managed futures sector that investors too often buy at the top and sell at the bottom, leading to a case of ‘once bitten, twice shy’, and then by the time they’ve got comfortable with the idea of going back into the managed futures space, the cycle will start all over again.

While performance chasing happens with every asset class, it’s going to be interesting to see how the performance and flows relationship in the managed futures space unfolds this year. January’s data hasn’t really done much to support either the bull or bear case for CTAs; the Barclay CTA Index was up a meagre +0.06% at the time of publishing. Whilst those extra billions of dollars of AUM won’t be amazed by those returns, they didn’t lose money. And tailwinds to CTA performance still exist – lower levels of quantitative easing and elevated levels of market volatility should support managed futures strategies, and trend following in particular, this year.

I’ll be watching with interest!

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Anthony D. Mascia is Managing Partner at EFSI. Connect with him on LinkedIn here. 

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