Investors have never really fallen in love with managed futures. Instead, these strategies have mainly been used as a building block to round out traditional stock-and-bond portfolios.

Their ability to follow a trend can be a great source of returns when the time is right, but investors need to be able to cut their losses when that trend turns against them. As a result, managed futures often run counter to the long-term approach touted by buy-and-hold investors.

However, by providing exposure to a wide range of asset classes, managed futures can also add value and stability over the long term. In their book Trend Following with Managed Futures, Alex Greyserman of International Standard Asset Management and Kathryn Kaminski of AlphaSimplex said: ‘The drawdown profile for equity markets is akin to a high-speed rollercoaster ride, in that the ride may be a bumpy one.

‘In comparison, trend followers have a rather persistent drawdown profile. Despite a history of criticism, there is  clearly something to following the trend,’ Greyserman and Kaminski argued.

Lowest maximum drawdown & lowest standard deviation

Ironclad Managed Risk

Although the smallest managed futures strategy by assets under management, Rudy Aguilera and Tim Holtz’s Ironclad fund has achieved the best risk measures in terms of annualized standard deviation (3.35) and maximum drawdown (3.34%) over the past three years. This risk profile likely derives from trading put and call options on equity indices and ETFs.

Unlike many other managed futures funds, which have suffered due to large bets on commodities and certain parts of the equities market, this fund has performed well over the past one and three years, returning 6.9% and 12.6% respectively. This is perhaps a product of its 43.3% long position in cash and its 55.8% long position in bonds.

The fund’s low maximum drawdown of 3.34% over the past three years demonstrates that the managers have been able to preserve investor capital while maintaining a steady performance. This also leads to tax efficiency as a result of a significant portion of the fund’s returns being classified as a long-term capital gain.

The fund ranked second out of the 26 Managed Futures funds tracked by Citywire for three-year total returns to the end of September.

Its 12.6% return means that it has pulled ahead of both the average fund in the category, which returned -3.4%, and the Cboe S&P 500 PutWrite index, which is up by 9.0%.

Largest by AUM

AQR Managed Futures Strategy

The team at AQR Capital Management – Cliff Asness, Brian Hurst, Ari Levine, John Liew and Yao Hua Ooi – has been working together on futures-based strategies since the mid-1990s.

The fund, which can take both long and short positions, holds more than 100 futures contracts across four major asset classes. It currently has allocations in commodities (25.7%) currencies (23.3%), fixed income (31.4%) and equities (19.6%).

The fund has certainly suffered over the past one and three years, falling by 3.9% and 14.5% respectively. A large part of that underperformance might be down to struggling commodities prices, particularly for oil.

Top by total return

361 Global Managed Futures Strategy

Managed by the investment team at Denver, Colorado-based boutique 361 Capital, this fund employs a suite of systematic trading models to take long, short and cash positions in equity index futures in the US, Europe and Asia.

The team uses three sets of proprietary models to measure overreactions in the market. The first is based on short-term price averages, allowing the team to identify oversold or overbought assets. The second identifies outsized movements in the market, while the third tracks imbalances between the number of buyers and sellers in the market.

The strategy aims to identify periods when fear and greed are present, then exploits relevant inflection points.