It’s not exactly a secret that managed futures has gained in popularity in recent years. In fact, from 1980 to mid-2011, assets under management for the asset class increased by over 800%, rendering managed futures as one of the fastest growing alternative investments available. That kind of growth has attracted a fair amount of media attention. We discussed in the past how media coverage of the asset class has had struggles with accuracy, but we have to say, 2012 coverage, in general, has been much better than in years past.

A new article up at Financial Advisor, for instance, does a decent job of making the right argument about managed futures- that you need to understand the way managed futures performance works before you invest. There were a few points of contention, though. Two paragraphs, in particular, stuck out to us:

Proponents of managed futures say the strategy provides diversification by investing in a broad range of assets that offer non-correlation to traditional long-only stocks and bonds. Many investors interpret “non-correlation” to mean that managed futures should shine when traditional assets stumble. But that’s not always the case.

Managed futures, as measured by the Altegris 40 index, lost 3.14% last year. In comparison, the Nasdaq Composite dropped 1.8% the S&P 500 was flat and the Dow Jones Industrial Average gained 5.5%. And the 13 managed futures funds tracked by Morningstar that traded for the entire 12 months last year had an average negative return of 6.92%.

Two things come to mind here. For one, it’s incredibly important to remember that non-correlation does not equal inverse correlation. Inverse correlation means that if investment A goes up, investment B goes down, and vice versa. Non-correlation means that the performance of investment A is not linked to the performance of investment B. So, when we say managed futures is non-correlated to other traditional asset classes like stocks and bonds, it means that gains or losses there, statistically, historically, do not influence managed futures performance in one way or another. It is this kind of non-correlation that fuels arguments for crisis performance benefits.

For two, it’s important to remember that managed futures mutual funds and managed accounts are very, very different. Morningstar may report managed futures mutual funds down an average of -6.92% in 2011, but the BarclayHedge CTA Index (an admittedly imperfect proxy for asset class performance) was down a mere -3.00% (boasting 565 index constituents in comparison to the 40 in the Altegris 40).  A loss is a loss, but if you have the capital to get into a managed account and the transparency, liquidity and tax benefits associated with such an investment, the performance numbers speak for themselves.

That being said, we’ll take articles like this over poorly researched pieces riddled with baseless claims any day of the week.