Current market volatility in the US is giving the managed futures industry a boost with investors seeking diversification from the fluctuations of the stock market.
Managed futures are one way of achieving this. Assets under management in this industry are reported to have finally broken through the $10bn barrier. Whilst this is just the opportunity that the managed futures industry have been waiting for, they may not be in the best position to take full advantage of it.
The situation is this: managed futures is still viewed as an alternative investment strategy. As US institutions further diversify out of US securities, it is understandable that the managed futures industry want to gain greater access to this market. The question is how to do this.
One key part of the solution revolves around the construction of an industry standard set of benchmarks, but this is itself a highly complex and controversial issue. Managed futures does not have broad recognition as a separate asset class - but is it one asset class or a series of classes? Managed futures funds tend to be unique to the manager, so how do you construct a series of benchmarks that cater for this? Current benchmarks (such as the MAR CTA Index) do not adequately cover the requirements as they produce a very attractive risk/return, distorted by the diversification across a set of CTA types that any single institution is unlikely to be able to replicate.
Ultimately, there is a need for a series of benchmarks with composites of key types as well as all types, in the same way that one has MSCI World and MSCI All Country World indices for global equities, plus other subsets, such as MSCI EAFE, MSCI Far East, etc. The way to generate these indices is much the same as the way Micropal calculate their sector indices. These indices need to reflect the managed futures funds after their individual charges, as well as before charges. Whilst their is demand for an investible series, the timeliness of these funds' reporting makes this difficult to achieve.
David Masters, Micropal in Boston