Alternative investment company Steben & Co has published a white paper on timing an allocation to managed futures.
The firm asks if the asset class has reached a cyclical low. The results of their research show that recent managed futures risk-adjusted performance (with a -1.99 rolling 12-month Sharpe ratio for the Barclay CTA Index as of June 30, 2017) is at its lowest point ever.
The study also finds evidence of historical mean reversion in 12-month Sharpe ratios. The study found a persistent pattern of mean reversion in 12-month Sharpe ratios in all the managed futures benchmarks Steben looked at since 1980.
Recent managed futures risk-adjusted performance (rolling 12-month Sharpe ratio) is at the low end of the historical range. If the mean reversion pattern continues, this indicator could bode well for managed futures, the firm says.
Steben writes: “As with most investments, adding to managed futures allocations on a dip in performance and trimming allocations after a run-up may improve results over the long run compared to a static allocation. Historically, managed futures performance tends to be concentrated in a few run-up periods.”
The study shows waiting for a three-month confirmation of positive performance before investing led to missing out on about 40 per cent of the total return in the managed futures run-up.
