Managed Futures: ‘Tis the Season for Losses

Director, Research

12/14/2018

Managed futures strategies have been among the most disappointing investment categories since the bottom of the financial crisis. For the largest funds in the category, performance went from bad to worse in 2018.

Now’s the time to evaluate these strategies and see if they can at least provide a potential tax benefit.

The top 10 managed futures funds in the Morningstar U.S. Managed Futures Category during 2018 tracked the market downward in February this year, due to high exposure to equity futures, but never recovered with the market when it rebounded.

These largest managed futures funds were also caught long on equities at the wrong time in October, right before the sell-off. They then struggled to benefit from the recent bounce-back in November as the funds lowered their equity risk with equity trends that became negative.

You might ask: Are there alternatives with less equity beta?

The WisdomTree Managed Futures Strategy Fund (WTMF) does not include equity futures as part of its investable universe. We felt that including equities could increase correlations to equity markets at a time when you want it least. This is most evident during a sharp equity reversal, like the ones we experienced in January and October, where a trend-following strategy that can’t quickly adjust is continually caught on the wrong side of the trade.

For those investors who own managed futures strategies, now could be a good time to tax-loss harvest and reinvest in a strategy with less sensitivity to the S&P 500 Index.

Managed Futures Performance

Managed Futures Performance_1218

For standardized performance of WTMF, click here.

Important Risks Related to this Article

Neither WisdomTree Investments, Inc., nor its affiliates, nor Foreside Fund Services, LLC, or its affiliates provide tax advice. All references to tax matters or information provided on this site are for illustrative purposes only and should not be considered tax advice and cannot be used for the purpose of avoiding tax penalties. Investors seeking tax advice should consult an independent tax advisor.

There are risks associated with investing, including possible loss of principal. An investment in this Fund is speculative, involves a substantial degree of risk and should not constitute an investor’s entire portfolio. One of the risks associated with the Fund is the complexity of the different factors that contribute to the Fund’s performance, as well as its correlation (or noncorrelation) to other asset classes. These factors include use of long and short positions in commodity futures contracts, currency forward contracts, swaps and other derivatives. Derivative investments can be volatile, and these investments may be less liquid than other securities, and more sensitive to the effects of varied economic conditions. The Fund should not be used as a proxy for taking long-only (or short-only) positions in commodities or currencies. The Fund could lose significant value during periods when long-only indexes rise (or short-only indexes decline). The Fund’s investment objective is based on historic price trends. There can be no assurance that such trends will be reflected in future market movements. The Fund generally does not make intramonth adjustments and therefore is subject to substantial losses if the market moves against the Fund’s established positions on an intramonth basis. In markets without sustained price trends or markets that quickly reverse or “whipsaw,” the Fund may suffer significant losses. The Fund is actively managed; thus, the ability of the Fund to achieve its objectives will depend on the effectiveness of the portfolio manager. Due to the investment strategy of this Fund, it may make higher capital gain distributions than other ETFs. Please read the Fund’s prospectus for specific details regarding the Fund’s risk profile.

Morningstar, Inc., 2018. All rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance, rankings and ratings are no guarantee of future results. The % of Peer Group Beaten is the funds’ total-return percentile rank compared to all funds within the same Morningstar category and is subject to change each month. Regarding ranking of funds, 1 = Best.