Lower Managed Futures Returns with Fed’s Lower Rates?

With Bill Gross calling the Fed’s extending of the zero rate period into 2014 today the equivalent of QE 2.5, we continue to sigh. Zero level rates aren’t exactly what we’d hoped for. After all, one of the benefits of investing via managed accounts is the ability to fund your account with tbills- gaining interest as you do.  A 5% tailwind in your managed futures account is a whole lot better than a 0% tailwind, that’s for sure.

But how much of a benefit is that tailwind anyway? If it was a big part of managed futures returns, we would expect managed futures to have much better performance during higher rate periods. And indeed, one of the common (uninformed) complaints you hear about managed futures performance over the years is that it’s been inflated by this ability to earn the returns from managed futures alongside the T-Bill returns, creating what some would call artificial strength. This argument is definitely aided by the performance of managed futures over the past three years when interest rates have essentially been at 0%. Returns for managed futures as an asset class (based on the Dow Jones Credit Suisse Managed Futures Index*) over that same three years is just +0.69% per year on average.

The critics would have you believe that managed futures returns would have something like the following relationship with T-Bill rates:

But we actually ran the data back to 1994 to see how it really looks. We found there were essentially five different rate periods during the past 18 years, with rates spending an average of 3.5 years at either 0%, 1%, 3.5%, 4.5%, or just over 5%.

Years

High

Low

Avg

’09,’10,’11

0.14%

0.03%

0.10%

’02,’03,’04,’08

1.66%

1.03%

1.38%

’94,’01,’05

3.99%

3.01%

3.56%

’98,’99,’06

4.73%

4.51%

4.64%

’95,’96,’97,’00

5.76%

5.02%

5.34%

And then all that was left was to see how managed futures as an asset class performed (based on the DJCS index*), on average, during each of those periods. The results…

Disclaimer: Past performance is not necessarily indicative of future results.

What we see is that there is essentially no connection between where rates have been over the past 18 years and where managed futures ended up those years, with the average performance highest in the 2nd lowest rate environment, and the 2nd lowest performance in the highest rate environment – not at all the scenario the critics would have you believe where managed futures do worse and worse as rates go lower and lower.

So, assuming our hopes for strong managed futures performance this year are realized, and assuming rates do continue to scrape the bottom of the barrel, managed futures critics may have one less thing to whine about.

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Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.

Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.

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