Wed, Jun 20, 2018
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. Lyxor recommends stockpicking strategies, L/S equity hedge funds well equipped for turbulent markets[more]

    Matthias Knab, Opalesque: Market developments in May saw some trend reversals across the fixed income and commodity space. On the one hand, the unfolding of the Italian political crisis coincided with a rebound of U.S. Treasuries during the second half of May. On the other hand, the rising likeli

  2. North America - George Soros: 'Everything that could go wrong has gone wrong'[more]

    From Marketwatch.com: George Soros, tell us how you really feel. 'Everything that could go wrong has gone wrong. [Trump] is willing to destroy the world.' The 87-year-old billionaire clearly isn't shy about expressing his generally liberal views and distaste for Trump's "America First" platform,

  3. Paper: The performance of stocks actively pitched by hedge funds[more]

    Using a novel dataset drawn from investment conferences from 2008 to 2013, I show that hedge funds take advantage of the publicity of these conferences to strategically release their book information to drive market demand. Specifically, hedge funds sell pitched stocks after the conferences to ta

  4. North America - US fundraising for special purpose acquisition vehicles hits record this year[more]

    From AFR.com: Special purpose acquisition vehicles (spacs) are hitting the US market at the fastest rate on record, attracting the likes of Goldman Sachs and hedge fund investor Daniel Loeb for the two largest such deals in 2018. Spacs have raised $US4.5bn so far in 2018, the largest amount fo

  5. Investing - Man Group and AQR try to take aim at private equity industry, Hedge funds poised to be winners in AT&T-Time Warner deal[more]

    Man Group and AQR try to take aim at private equity industry From FT.com: The popularity of private equity investments has prompted asset managers such as Man Group and AQR to devise strategies that aim to replicate PE returns but at a much lower cost to investors. Both companies a