Hottest alternative? Managed-futures funds, research shows

Managed-futures funds represent the most popular category among alternative strategies, according to the latest research from BarclayHedge Ltd. For the three-month period ended June 30, managed futures accounted for $233.4 billion of the total $1.78 trillion invested in all types of hedge fund strategies during the quarter. This marks the first time since BarclayHedge started tracking hedge fund data in 1985 that managed futures surpassed all other alternative strategies in terms of assets under management. Driving this rise in popularity is the fact that other asset classes and strategies are struggling, combined with a new awareness of managed futures as a non-correlated asset class, according to Sol Waksman, founder and president of BarclayHedge. “In recent periods of prolonged stock market decline, managed futures have performed well,” he said. “In 2008, for example, the negative correlation between equities and managed futures was dramatic.”

'CHANGING SENTIMENT'

In 2008, the Barclay CTA Index, which measures managed-futures performance, gained nearly 15%, while the S&P 500 declined by 37%. Mr. Waksman said, however: “The current growth in managed-futures assets has been largely unrelated to stock market correlation or to recent commodity prices, and has been more closely aligned with changing sentiment among sophisticated investors, who are now seeking transparency, liquidity and lower downside volatility within their portfolios.” In terms of volatility, the Barclay CTA Index's worst peak-to-valley decline since 1980 was a drop of 15.7%. That compares with a peak-to-valley decline of 51% by the S&P 500 over the same period. “In 2008, investors used managed-futures accounts like an ATM machine, taking redemptions that totaled more than $35 billion to meet their liquidity demands,” Mr. Waksman said. “That lesson in the value of liquidity has not been forgotten, as investors are now, in 2010, putting assets back into managed-futures funds, despite the recent lackluster performance of most commodities-trading advisers.” Total assets in managed futures during the second quarter were followed by event-driven strategies, which had $222.4 billion in total assets, and emerging markets, which had total assets of $190.3 billion. Merger arbitrage was the strategy with the lowest total assets during the quarter, at $27.9 billion. E-mail Jeff Benjamin at jbenjamin@investments.com.