Economics

What Funds Remain Highly Ranked After February’s Stress Test?

Article by RCM Alternatives

Pain was felt throughout the Managed Futures world in the month of February. Some had very large positions in a single sector that cost them dearly. Some lost most of their 2018 gains but was able to employ their risk metrics to fight another day, and some funds were on the right side of volatility. Of course, hindsight is 20/20 and performance is not necessarily indicative of future results, but one of the worst months in Managed Futures history is an opportunity to see who continues to walk the walk.

Get Our Activist Investing Case Study!

Get the entire 10-part series on our in-depth study on activist investing in PDF. Save it to your desktop, read it on your tablet, or print it out to read anywhere! Sign up below!

See 2017 Hedge Fund Letters.

Tumisu / Pixabay

One month isn’t all that important in the grand scheme of things when it comes to averaging performance and measuring consistency of returns and the like. But when it’s an outlier to the downside, it’s more important than you might think in stress testing a program’s risk protocols and seeing if performance remains inside expected bounds – both at the program level and in relation to other programs who were dealt the exact same hand.

Introducing our 2018 Managed Futures Rankings, which we delayed a little past its normal release to include program’s February 2018 returns, good or bad. Our rankings start by filtering the BarclayHedge database to a smaller subset of managers which have at least 36 months of track record and are investable (no pro-forma or prop account records, for example; or currency traders using Turkish banks).

We then measure the programs across different metrics related to return (like compound RoR, Omega ratios), risk (like lowest 3yr return, average drawdown), correlation levels, and length of track record. Next, we time-weight the numerous statistics, evaluating each metric across 1, 3, 5, and 10 year time periods in addition to the full length of the program since its inception. This focus on varying time frames ensures that great returns far back in a program’s track record don’t skew their ranking, and, likewise, that newer programs that haven’t “lived through tough times” don’t dominate the rankings.

The Managed Futures asset class is a diverse place with multiple strategies, where top performers can come from the biggest of the big, like multi-Billion dollar Man AHL – or small specialized traders like Tanyard Creek’s sub $100 million hog program. While the bigger managers have the budgets to create glossy brochures and jet around to conferences and comfort investors that they know what they’re doing, there’s a refreshing simplicity to cutting through all that noise and looking just at the numbers. Everyone says they control risk- but who does it better than the next guy. Everyone thinks they can outperform in a down cycle for the asset class, but who’s really zigging while the rest of the space has zagged. To get into the nitty-gritty, we created nine categories of rankings that most investors are looking at when considering an investment.

Click here to download the rankings!

PS – while we categorize and put these in a nice package for you twice a year – our CTA database has rankings which update monthly as managers report their numbers, for you to build your own watchlists and identify top performers on any number of metrics.