We love Barry Ritholtz’s site The Big Picture. It’s one of our favorite finance blogs out there, and we recommend it to anyone looking for good information and perspective on the market, despite the fact that he rarely discusses managed futures…
But maybe he doesn’t discuss managed futures because he doesn’t completely understand what they are. Case in point – a recent post of his literally refers to managed futures and commodities as a single entity (emphasis ours):
No fools they, the overpaid consultants happily complied, and the next thing we know, these Whiffenpoof Wannabes are up to their eyeballs in private equity, hedge funds, structured products, real estate, and commodities/managed futures…
One of the few that is not are the Commodities/Managed futures bucket…
Granted, these snippets are taken out of context, but reading the piece it’s pretty apparent that Mr. Ritholtz is treating these two as though they’re one and the same. To be clear, managed futures is NOT commodities. Managed futures does trade futures markets – including, but not limited to, commodity futures (don’t forget about the fact that interest rate and index products are traded on the futures exchanges, too).
But the kind of commodities investment he is referring to is what we call long-only commodity exposure – in other words, just going long commodities and hoping the price goes up… and managed futures despises that model. Managed futures is about going long and short commodity markets, timing entries and exits, and rotating between sectors – not just “buy, hold and hope.”
In fact, that’s pretty similar to what Mr. Ritholtz himself has advocated in terms of stock investing – it’s not just buying and holding there, either. If this were on the SAT test, it would look like this:
|
Correlation Between Barclay CTA Index and CRB Commodity Index |
|
|
1 Year |
-0.178 |
|
3 Year |
0.277 |
|
5 Year |
0.290 |
|
10 Year |
0.346 |
Finally – the AUM of managed futures is not seeing the “great rotation” he’s referring to. It is up $71 billion since 2008, and only down $7 billion from the peak in 2011 as of the end of 2012:
(AUM figures via BarclayHedge and excluding Bridgewater, since we don’t really think they count as managed futures)
The rotation he’s talking about – investors increasingly giving up on long-only commodity investments – is real, and we talked about it just last week. But to say that this is somehow a criticism of managed futures is to completely miss what our investment vehicle is all about.