Thu, Jul 28, 2016
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. Opalesque Exclusive: California-based manager launches long/short equity hedge fund with unique algorithm[more]

    Benedicte Gravrand, Opalesque London for New Managers: SJL Capital LLC, an investment advisory firm based in California, has launched its maiden fund, the SJL MarketDNA Hedge Fund LP. The fund, which began trading

  2. Manny Roman to move from Man to Pimco[more]

    Benedicte Gravrand, Opalesque London: Emmanuel (Manny) Roman, an investment world veteran, has been hired by PIMCO, the large US bond fund house, as chief executive officer. PIMCO's current CEO Douglas Hodge will assume a new role as managing director and senior advisor when Roman joins P

  3. HFR: Hedge funds post strong gains in mid-July as markets recover from Brexit losses[more]

    Komfie Manalo, Opalesque Asia: Hedge funds posted strong gains through mid-July as the equity markets continued the recovery from Brexit losses. The HFRX Market Directional Index gained +2.17% (+4.22% YTD) and the HFRX Global Hedge Fund Index gained +1.03% through mid-month (+0.19%

  4. News Briefs - Carlyle goes on trial for a financial-crisis meltdown, Private equity and venture capital outperformed public markets in 2015, Pippa Middleton gets engaged to hedge fund manager James Matthews[more]

    Carlyle goes on trial for a financial-crisis meltdown Carlyle Group co-founder Bill Conway was in court on this small island last week recounting one of the most bruising episodes in his private-equity firm’s history: the 2008 collapse of mortgage-bond fund Carlyle Capital Corp. Carlyle

  5. …And Finally - Two men fall off cliff playing Pokemon Go[more]

    From BizarreNews.com: Two men who fell from a seaside cliff north of San Diego told authorities they became distracted while playing augmented reality game Pokemon Go. Encinitas fire Battalion Chief Robbie Ford said one of the men fell about 50 feet down the bluff in Encinitas while the other man fe