Managed futures are marketed as having low correlation to stock and bond markets. However, within the strategy, returns between managers (known as commodity trading advisors or CTAs) have varied. According to David Kavanagh, CEO of Grant Park Managed Futures Mutual Fund, and Greg Anderson, Chief Investment Officer of Princeton Fund Advisors, returns are affected by four factors: type of market securities, trading strategy, timeframe and research methodology. They may trade in different futures covering currencies, energy, equity, fixed income, food or metals. Obviously, the trading strategy - whether it is trend following or contrarian - affects returns. Timeframes are how long a security is held. They may be held for days or months. Research methodology determines the trading signals for the manager. They can be quantitative, top down or technical (charts).
According to Anderson, the four risks in the managed futures space are selecting the wrong manager, poor design of the investment portfolio, trading strategies becoming obsolete due to changing markets and tail risk. Kavanagh adds understanding the edge of any CTA over its competitors. The manager selection process considers several factors: track record, trading strategy, fund's operations and back office, experience of the principals and fit within a portfolio. On a more detailed level, Anderson would consider the interest income, cost structure (including trading commissions), trading results and an audited performance history.
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