Are Managed Futures Starting To Work Again?

Managed futures strategies have been among the most disappointing investment categories over the last four to five years. These strategies were designed to have negative correlation to both stocks and bonds—and in what has been a strong equity market, the negative correlation has come through, with flat to negative returns for many managed futures strategies. 

In recent years, commodities were continually being whipsawed, with few persistent trends these long/short futures strategies could capitalize on.

In mid-2016, WisdomTree developed a new managed futures index that looks to incorporate multiple momentum periods to determine and scale long or short positions. It furthermore includes a volatility signal that tries to identify commodities that are at higher risk of whipsaw movements and looks to avoid positions in those commodities. 

Re-establishing Trending Markets?  

After a trendless market where this Index had low to negative returns, the fourth quarter of 2017 saw the strongest three-month return for this strategy in its short life span.  

Rolling Three-Month Performance 

Contributing the most to these gains was the rise in oil prices and energy-related commodities, which the Index established long positions in starting in August and September, depending on the specific commodity. It maintained those positions throughout the fourth quarter, which was a significant positive contributor. The same goes for copper, which showed strong gains in the fourth quarter as well. 

There were only modest losses on commodities such as silver and soybeans, which resulted from short positions in those commodities. 

WisdomTree Managed Futures (WTMF): Price Return Contribution of Assets (2017 Q4, bps) and Positioning 
Weight-Adjusted, Quarter To Date, as of 12/29/2017

WisdomTree Managed Futures (WTMF): Price Return Contribution of Assets (bps) and Positioning