The original idea surrounding our latest newsletter started with the “Bond King” himself, Bill Gross. This past April, the legendary bond trader penned a timely, introspective article titled after the famous Michael Jackson song – “Man in the Mirror.” In summary, Mr. Gross ponders if many of the world’s greatest investors from Peter Lynch, to Ray Dalio, to Warren Buffet, as well as himself should thank thirty years of nothing but falling interest rates for their overall success. We immediately saw parallels with our little corner of the universe – managed futures, where those very same falling interest rates have similarly been a boon to many a manager and the asset class as a whole, providing what some have called a falling rate tailwind.
With US 10-Year Note Yields up nearly 70% over the past 16 weeks (the highest such percentage change in 15 years), we’ve seen a bit of a dress rehearsal for a rising interest rate environment with bond prices falling steadily lower. That is what we like to call, in the biz, a down trend. But how did trend loving managed futures do with this down trend? Not so well, unfortunately. Part of that is due to the down trend starting as a reversal of the uptrend (causing reversal losses), but it brings up an interesting question moving forward. Namely… will a down trend in bonds treat managed futures as well as the 30 yr up trend has?
Disclaimer: (Past performance is not necessarily indicative to future results)