While most hedge funds and fund of hedge funds lost money in 2008, one strategy stood out on the positive side. Managed futures gained 13.9% in 2008, its best annual performance since 1990, according to a report by HedgeFund Review using data from the BarclayHedge CTA Index.
The term “managed futures” refers to a 30-year-old industry made up of professional money managers who are known as “commodity trading advisors” (CTAs), according to the website, Investopedia.
CTAs often manage their clients’ assets using a proprietary trading system. This may involve going long or short in futures contracts in areas such as metals (gold, silver), grains (soybeans, corn, wheat), equity indexes (S&P futures, Dow futures, NASDAQ 100 futures), soft commodities (cotton, cocoa, coffee, sugar) as well as foreign currency and U.S government bond futures. Money invested in managed futures has more than doubled in the past few years and is expected to grow even more if hedge fund returns stay flat and stocks underperform.
Many of the funds tracked by the Barclay CTA Index use trend-following strategies and go long if prices are going up and short if prices are falling. Another index, the Barclay Diversified Traders Index, which measures an equal weighting of managed programs trading in a diversified portfolio, gained nearly 27% last year. The results indicate that there clearly are big opportunities for hedge fund managers even in these challenging economic times.