We had a lot of great meetings and conversations with people in the industry over the past few days at the MFA’s Forum 2012. As often happens at such gatherings, talk turns to the biggest name in the managed futures space – Winton.

Whether it is sour grapes or not, there were at least three people we talked to at the various cocktail parties and social events who wondered what is going to happen with Winton moving forward. They all preface any comments by saying Winton is amazing, smart, the best, etc. – but… they all thought Winton’s best days may be behind it.

Here’s the gist of the speculation (and we’ll call it just that, because you don’t get 30 Billion big without knowing how to do things) – because of their large size, Winton has been forced to go into ever more liquid markets, and currently has the grand bulk of their trading in the most liquid markets (stocks, bonds, and currencies), and especially bond futures and especially the long end of the curve (i.e. 30yrs).  The past several years (if not the past 40) have been incredibly good to trend following strategies in the bond markets, and 2011 in particular saw portfolios with more bond exposure do better than more diversified portfolios.

So, the question out there is what happens to Winton when this bond trade isn’t working. Those not managing tens of billions can get meaningful diversification out of different sectors like grains, meats, softs, and so on; markets which Winton effectively can not access given their size. In a cruel twist of fate, smaller managers’ exposure to those sectors has actually hurt them much of the past 4 years (or at least caused them to underperform Winton) as the risk on/risk off trade has made everything essentially one trade – thereby removing the effectiveness of market diversification as a risk tool, and limiting the opportunity for non-correlated profit out of those sectors.

If Winton was only managing a single billion instead of tens of billions, would they still be mostly skewed to financials, or would they choose the market diversification nearly all other CTAs employ? We’ll never know the answer to that hypothetical, but it is an interesting thought experiment.

In the end, nobody wants to see Winton struggle – even those competing for assets (in what is a decidedly one-sided competition) – because they have become the flag bearer for our industry and, probably half the actual people with managed futures investments are exposed to them through various private and publically offered funds.  But they bring up an interesting question – has Winton just been lucky the past few years thanks to its forced bond exposure, or good?