In the 12 years between 2000 and 2011, managed futures underperformed U.S. equities in seven of those years. But according to Altegris, during the 10-year period ending last December 31, the Altegris 40 returned 6.5% versus 2.92% for the S&P 500.
Low Correlation, High Cost
Correlation is a statistical measure showing how closely different types of investments move together over time. A correlation of 1 means they move in perfect unison, 0 means their movements are random, and minus 1 means they move in opposite directions. According to Altegris, during the 10-year period ending last year, managed futures had a correlation of minus 0.09 to U.S. stocks (S&P 500), 0.03 to international stocks (MSCI EAFE index), 0.16 to U.S. bonds (Barclays Capital US Aggregate index), and 0.21 to commodities (S&P GSCI Total Return index).
That type of non-correlation, say managed futures proponents, can help shield investors during down markets and provide solid long-term results. But it also comes at a cost. The Class A shares of the Grant Park Managed Futures Strategy fund carry net expenses of 1.95% and the Class C shares have net expenses of 2.70%. Net expenses on the Princeton Futures Strategy fund are 2.20% for the A shares and 2.95% for the C shares. And the Altegris Managed Futures Strategy fund has a net expense ratio of 3.86% on its A shares and 4.62% on its C shares.
"We have higher costs because we're going after best of breed managers who deliver the goods," says Sundt, whose fund picks the best managers in the Altegris 40 and combines them into one offering where each of them manages a portion of the fund. "It would cost $1 million to $25 million to engage them directly."
Kavanagh offered that fees needn't be too big of an issue with investors considering that managed futures should comprise no more than 5% to 15% of an overall allocation, and that the long-term performance of managed futures justify the cost. "Cost becomes an issue in the absence of value," Kavanagh said.
For investors, this is all part of the learning curve that comes with managed futures.
--Jeff Schlegel