CATALYST FUNDS RESEARCH
Adding Alternatives: Allocating to Managed Futures
August 2018 | Public Version
In our last report, The Next Asset Class: Managed Futures, we reviewed the challenges that investors face in de-risking a portfolio with only the five main asset classes: stocks, bonds, real estate, gold and cash. We concluded that managed futures exposure could be effective in de-risking a portfolio in today’s environment, which is defined by an increasing number of risk factors following an era of unprecedented central bank intervention. Historically, implementing managed futures exposure into a portfolio may have resulted in higher returns with reduced drawdowns and lower volatility. Even a 10% allocation to managed futures exposure would have improved portfolio performance.
Allocating to Managed Futures Exposure Has Historically Improved Portfolio Return/Risk and Reduced Drawdowns
Return per risk calculated as annualized return divided by standard deviation.
Managed Futures and Crisis Alpha
Managed futures have a long history of providing crisis alpha, i.e., positive returns during periods of equity market turmoil. Even a 10% allocation to managed futures exposure in a portfolio would have reduced the maximum drawdown as compared to a traditional 60/40 portfolio.
Blended Indexes: % U.S. Equities | % Bonds | % Managed Futures
Historical annualized returns, risk (standard deviation) and maximum drawdowns based on monthly return data for BarclayHedge CTA Index (Managed Futures), S&P 500 Price Index (U.S. Equities), MSCI World Index (World Stocks), Bloomberg Barclays US Aggregate Bond Total Return Index (Bonds), FTSE NAREIT All Equity REITS TR Index (Equity REITs), S&P GSCI TR Index (Commodities), and LBMA Gold Price PM (Gold) from January 1980 to June 2018. Blended indices assume a monthly rebalance to the target allocation. Source: Bloomberg LP.
Alternative investments may not be suitable for all investors and an investment in alternative funds is suitable only for investors who can bear the risks associated with the illiquidity of the fund’s shares and should be viewed as a long-term investment.
Past performance is no guarantee of future results. The referenced indices are shown for general market comparisons and are not meant to represent any fund. Investors cannot directly invest in an index; unmanaged index returns do not reflect any fees, expenses or sales charges.
8061-NLD-8/24/2018