With the first round of the “real” tournament completed, it’s time for our managed futures tournament games to be decided. As a reminder, we don’t have 3 years or more to play the tournament and see which CTA in each game came out on top (well, we do have that sort of time – but who’s going to  stick around and watch it?) So, to decide the “games” for each round, we select at random one of the statistical measures we use in calculating the managed futures rankings on our website.

The metric selected for the first round? Total Return. A simple metric if ever there was one – it’s the total simple return (ending amount minus starting amount divided by starting amount) the program has made since inception. What kind of range are we talking about? Aren’t all of these highly ranked, hundreds of millions under management programs pretty close on how much they have returned since inception? Not even close.

Consider just the 9 programs in our contest managing over $1 Billion. Would you believe the total return for those programs ranges from a low of 179% (AHL) to a high of 20,000% (Millburn)? Looking at the whole field of 64 CTAs, the score ranged from a low of 9% compared to that high of 20,000%. [past performance is not necessarily indicative of future results]

Is Millburn really 100 times better than QIM? No. Part of what is going on here is time. Millburn’s been at it since 1977, while QIM’s Jaffray Woodruff may not have even been born then – with their track record starting in late 2003. A 26-year head start is a lot to make up when looking at Total Return.

So, those with a lot of upset picks in their brackets likely weren’t happy to see this be the metric used – as for the most part, those managed futures programs with significant money under management are those that have done well, but more importantly, have been doing it for a long time. Case in point – all #1 and #2 seeds advanced through the first round. You don’t get to over $1 Billion under management without some returns, that’s for sure.

But poring over the rest of the bracket – there were definitely some upsets – like #13 seed Accela Capital ($10m AUM) posting a 117% total return against #4 seed JE Moody ($368m AUM) and their 77% total return. Or #14 seed KMJ Capital ($5m) over #3 seed Eclipse ($557m). But in the end, Total Return is just one metric among many – and while telling of some things, like who has been around for a long time and who has a lot of money under management, its use is limited on a standalone basis.

Sure, it is impressive when a manager can show you they have made 500% since inception. But what if that was 480% in the first 10 years, and 20% in the last 10 years? That’s almost equally as unimpressive. And what about a new manager who has been beating the pants off the competition for the past 3-5 years, but just hasn’t had enough time in their track record to build up a big total return number? Should we ignore their good recent performance simply because they weren’t around? Probably not. In the end, total return is like a tournament coach’s career coaching record. It may be impressive and may be worth looking at, but it surely isn’t going to win the game on its own the next day.

We’ll post the deciding metric for the 2nd round games later today with links to the current standings for those who entered the contest.