Thu, Mar 26, 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. Other Voices: Does the hedge fund industry benefit society?[more]

    This article was authored by Don Steinbrugge, Chairman of Agecroft Partners, a US-based global consulting and third party marketing firm for hedge funds. It is no secret that the hedge fund industry is viewed negatively by a la

  2. Private credit comes into focus for investors[more]

    Bailey McCann, Opalesque New York: As investors look for a way out of the low yield/no yield environment, private credit is becoming an increasingly attractive asset class, according to a white paper from Bayshore Capital Advisors. Private credit has grown steadily since the financial crisis as

  3. M&A - Hedge funds no longer attractive targets for banks, reinsurers, Blackstone buys stake in Christopher Pucillo’s Solus event-driven hedge fund[more]

    Hedge funds no longer attractive targets for banks, reinsurers From Institutionalinvestor.com: Swiss RE, the world’s second-largest reinsurer, is looking to sell its 15 percent stake in Jersey, Channel Islands–based hedge fund firm Brevan Howard Asset Management. Morgan Stanley reported

  4. Opalesque Radio: Threadneedle expects continuing equity volatility this year[more]

    Benedicte Gravrand, Opalesque Geneva: Investors should expect more volatility, which is signaling a "slow moving" top to the market, KKM Financial’s founder and CEO Jeff Kilburg told CNBC on Monday. And this volatility is going

  5. Hedge funds show strong performance of 2.52% so far in 2015[more]

    Komfie Manalo, Opalesque Asia: The hedge fund industry got off to a strong start in 2015 "completely unmindful" of the poor performance last year, according to data provider Preqin. According to Preqin, following a year which saw the average he

banner