Are futures the way of the future?
Managed futures could be the way of the future given their diversification and liquidity properties, according to London-based quant fund, Aspect Capital.
The fund manager, which has ties to the Australian market through its distribution partner, CFS, uses a systematic, momentum-based investment strategy to follow trends in the medium term.
Director of investment solutions, Christopher Reeve, told Money Management that while “futures” is a relatively uncommon term in Australia, it’s quite common elsewhere, and is a form of derivatives, which is an alternative strategy.
Reeve said the benefits of futures are simple: low correlation; no bias; research-directed; and providing protection against downside risk.
He emphasised the fact that, while managed futures seem risky, they’re no riskier than investing in the general stock market, and given their low correlation to traditional asset classes, they can help investors hold their capital in down markets.
While he doesn’t expect the quant investment method to take over the industry, he does think the discretionary versus systematic debate will grow, and he predicts discretionary managers’ choices will be more data-driven in the future.
Reeve also said while historically institutional investors have been taking advantage of futures and alternative strategies like alternative risk premia, he sees this “spilling down” to independent financial advisers and the “mum-and-dad” investor.
He has also noticed a trend from institutional investors chasing short-term performance, to leaving capital invested for the long term, and riding out dips in performance.
According to FE analytics, the CFS Aspect Diversified Futures fund, which aims to generate medium-term capital growth independent of overall movements in traditional stock and bond markets, has returned 7.49 per cent across five years, 0.37 per cent across three years and 2.82 per cent across the year to 31 August 2018.
The chart below shows the performance of the fund as compared to the performance of its benchmark, the RBA Interbank Overnight Cash Rate, for the three years to 31 August 2018.
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