In September last year we showed how to build a portfolio that outperforms the SG CTA Mutual Funds index from a few Managed Futures ETFs on a risk-adjusted basis. The managed futures ETF industry has taken a bit of a hit recently, with the announced closure of the RYZZ Managed Futures Plus ETF and JP Morgan Asset Management closing its Managed Futures ETF as well. 

Given that the options for investors to get exposure to managed futures strategies in an ETF wrapper will be reduced by these closures, we wanted to revisit these products to see how this approach stood up to the test of recent market volatility due to the COVID-19 pandemic and so we have re-ran the numbers YTD.

So we take the same set of ETFs and build and equal weighted portfolio and throw them against the SG CTA Mutual Fund Index, without any adjustments at first:

And the stats reveal that our portfolio has considerably lower volatility, just like last year. 

In fact, for a little more than a third of volatility it delivers more than a half of return, making a volatility adjusted comparison a must. So here is the same chart adjusted for vol:

Of course, there is only 4 months of data available for 2020 so far, which is not much, and for 3 of them the portfolio has been lagging behind the index, but the upside is still considerable and shows that one does not need all the index constituents to get decent results. And while an equity index is not a direct performance benchmark for CTAs, everybody is watching the equity markets these days. So we want to put things in perspective and plot all three on the same chart (vol adjusted to 15% annualized), along with the statistics:

What we see is the model CTA performance pattern: in times of equity distress, they not only hold their ground better, but also deliver much needed upside. The recent closures of the RYZZ and the JPMAM Managed Futures ETFs are interesting because an allocation to managed futures ETFs is a cheap way to get managed futures exposure and works for both retail and institutional investors alike. It will be interesting to see how the remaining managed futures ETFs perform through the rest of the year, and if the recent closures spell doom for what is, in principle, a great idea.

This post is part of our AlphaWeek blog and can be found here: https://www.alpha-week.com/managed-futures-etfs-enjoy-strong-2020-closures-suggest-lack-adoption