Thu, Mar 5, 2015
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Opalesque Futures Intelligence

Index Tracker: Long commodities vs. managed futures: what the indexes say.

Tuesday, November 16, 2010

Long Commodities vs. Managed Futures

In the previous section, Ira Kawaller argues that long-only commodities do not on the whole add to a portfolio's return over the long term. This is an ongoing debate of increasing importance as long-only commodity index investments grow.

As far as index data goes, long commodities make big returns at times and big losses at other times. The past few months demonstrated this. In September, the S&P Goldman Sachs Commodity Index gained 9.4%, but that was after losing almost 5% in August. By contrast, managed futures returns were solid for both months (Chart 1). One notices hat managed futures is less volatile and tends to vary within a narrower range.

CHART 1 Long Commodities vs. Managed Futures in Recent Months

---------------------------------------------------------------------------------------------

September August
Dow Jones Credit Suisse Managed Futures 2.8% 4.9%
DJ-UBS Commodity Index 7.3% -2.6%
S&P Goldman Sachs Commodity Index 9.4% -4.9%

---------------------------------------------------------------------------------------------

Look back over the years and you see a similar pattern. A long-only commodity index like the S&P GSCI can make the outsized gains, like the 33% it returned in 2007. Managed futures indexes do not show that kind of profit even in very good years, although individual CTAs can have very high returns.

On the other hand, the S&P GSCI went down by 47% in 2008, while managed futures proved its ability to act as a hedge in a market downturn (Chart 2).

The key issue is preserving capital. Long-only commodities lose so much in bad years, an investor that stays with a commodity index-based fund has less capital to take advantage of the surges. Not so with a diversified portfolio of managed futures programs. Losses are muted - so more of a long-term investor's capital is preserved for making money when market conditions favor the strategy.

CHART 2



 
This article was published in Opalesque Futures Intelligence.
Opalesque Futures Intelligence
Opalesque Futures Intelligence
Opalesque Futures Intelligence
Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing


  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Outlook - Philippe Jordan predicts 'alternative beta' to displace hedge funds, Stan Druckenmiller says Europe, Japan stocks will outpace U.S.[more]

    Philippe Jordan predicts 'alternative beta' to displace hedge funds From Investordaily.com.au: The disappointing performance of hedge funds in recent years is a result of "too much money chasing too little alpha", argues Capital Fund Management. Speaking to InvestorDaily, CFM partner Phi

  2. Investing - Seth Klarman of Baupost outlines his investment process as major stock market indices are stretched, Myriad hedge fund sold bulk of its Alibaba stake last year[more]

    Seth Klarman of Baupost outlines his investment process as major stock market indices are stretched From Valuewalk.com: As hedge fund manager Seth Klarman, leader of the $28 billion Baupost Group, reviews 2014 performance and considers investors gained near 7 percent on the year, he cons

  3. Investing - As rig count falls, hedge funds pile into long crude futures, Parus tactically shifts long/short exposure ratios, Mario Draghi outflanking Kuroda as bearish euro bets surge, Prime Capital’s 500.com bet derailed after 41% drop[more]

    As rig count falls, hedge funds pile into long crude futures From 247wallst.com: In the week ended February 27, the total number of rigs drilling for oil in the United States came in at 986, compared with 1,019 in the prior week and 1,430 a year ago. Including 281 other rigs mostly drill

  4. Opalesque Exclusive: dbSelect’s top ten FX strategies average almost 10% in January[more]

    Benedicte Gravrand, Opalesque Geneva: In one of Deutsche Asset & Wealth Management (AWM)’s hedge fund platforms, called dbSelect, a number of FX Strategies did very well in January. dbSelect is a managed investment platform for unf

  5. Opalesque Exclusive: SEC’s Mark J. Flannery warns hedge funds against valuation misconduct[more]

    Komfie Manalo, Opalesque Asia: Securities and Exchange Commission chief economist and director of Division of Economic and Risk Analysis (DERA) Mark J. Flannery has warned of the risks posed by market misconduct, particularly in the true valuation of assets by hedge fund managers. In his