Portfolio Design: A Modern Approach to Asset Allocation

ACTIVE INVESTMENT IN COMMODITIES—MANAGED FUTURES

Managed futures are on investors’ minds. In the 2008 downturn, this asset class gave investors an 18.3 percent return in a year when the DJ UBS index was down 35.7 percent and the Goldman Sachs commodity index was down 46.5 percent. Commodity prices turned down at mid-year and the active managers in the managed futures space obviously played this turning point well.

Investment in managed futures could have been analyzed in the chapter on hedge funds. But it’s useful to compare the performance of these investments with their passive counterparts. In Chapter 9, returns on the Credit Suisse/Tremont hedge fund index were analyzed over the period 1994 to 2009. A subset of this overall index is the Credit Suisse/Tremont Managed Futures index tracking the returns of Commodity Trading Advisors (CTA) who take positions in bond, currency, and equity as well as commodity futures markets.12 Since 1980, the Barclay CTA index has provided another source of managed futures returns. The index was begun in 1985 with backdating of returns to January 1980.13

Table 12.7 reports the returns on these two active indexes and compares them with returns on the two passive indexes described earlier. Over the period from 1994 to June of 2009, the Credit Suisse/Tremont Managed Futures and Barclay CTA indexes have compound returns similar to the return on the DJ-UBS index but above that of the GSCI index. This is a relatively short period of time, so not too ...