Managed Futures: ‘Tis the Season for Losses

Managed futures strategies have been among the most disappointing investment categories since the bottom of the financial crisis. For the largest funds in the category, performance went from bad to worse in 2018.

Now’s the time to evaluate these strategies and see if they can at least provide a potential tax benefit.

The top 10 managed futures funds in the Morningstar U.S. Managed Futures Category during 2018 tracked the market downward in February this year, due to high exposure to equity futures , but never recovered with the market when it rebounded.

These largest managed futures funds were also caught long on equities at the wrong time in October, right before the sell-off. They then struggled to benefit from the recent bounce-back in November as the funds lowered their equity risk with equity trends that became negative.

You might ask: Are there alternatives with less equity beta ?

The WisdomTree Managed Futures Strategy Fund (WTMF) does not include equity futures as part of its investable universe. We felt that including equities could increase correlations to equity markets at a time when you want it least. This is most evident during a sharp equity reversal, like the ones we experienced in January and October, where a trend-following strategy that can’t quickly adjust is continually caught on the wrong side of the trade.

For those investors who own managed futures strategies, now could be a good time to tax-loss harvest and reinvest in a strategy with less sensitivity to the S&P 500 Index.

Managed Futures Performance

For standardized performance of WTMF, click here .

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