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By John Dolfin, CFA Chief Investment Officer and Christopher Maxey, CAIA, Senior Portfolio Manager of Steben & Company:

Managed futures have become an alternative asset class that is widely used by investors seeking overall portfolio diversification and absolute returns independent of the direction of broad equity and bond markets. The most common managed futures trading strategy is trend following, a strategy that attempts to exploit momentum in more than 200 global futures markets (including commodities, equities, fixed income, and currencies) by taking long positions in rising markets and short positions in falling markets.

While investors have embraced the potential benefits of managed futures, the causes of the large performance dispersion among trend following commodity trading advisors ("CTAs" or "managers") are not well understood given that their trading programs are conceptually similar. The research team at Steben & Company set out to find answers.

From 2006 to 2015, the annual performance gap between the year's top and bottom quartile trend followers averaged 28 percentage points, a very wide margin (Chart 1). Furthermore, in 2008, when investors were most reliant on trend followers to deliver performance to offset stock market losses, the performance gap between top and bottom quartile trend followers grew to 55 percentage points. With managed futures, we believe, manager selection is paramount.

A compari......................

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