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Top Managed Futures can Diversify Holdings

Some of the top managed futures funds for 2010


Fund rankings are a huge business, mainly because retail investors love to chase performance.

Academics have noted this in mutual funds and in individual stock recommendations for years. For instance, investors bought up the stocks mentioned positively on the TV show Wall $treet Week With Louis Rukeyser. This show proved so popular that equity recommendations made on the show moved the market.

But subsequent academic studies found that stocks recommended by Rukeyser’s guests rose in price and trading volume in the days preceding the Friday evening broadcast, peaking on Monday, but then dropped in price and under-performed the market for up to a year following the recommendation.

Likewise, the power of a top-recommendation in a fund ranking continues to feed the crowd effect. This explains why mutual funds which receive a top ranking from Lipper or Morningstar pay licensing fees to use that accolade in their advertising.

In contrast, the managed futures business does not have the wide public following to benefit from a specific boost from a rating company. There are only a few companies which rate managed futures funds, plus their rating system is based on a fund’s strategy, as well as its asset class and assets under management.

As a result, making comparisons among managed futures funds acknowledges that strategy and asset class are as important as the manager’s active management talents.  In contrast, many mutual fund investors pay for active management, but are disappointed when they learn they have bought into a buy-and-hold strategy.

All this is better illustrated in the rankings of the top managed futures funds, based on data provided by BarclayHedge.  Based on this rating system, funds are categorized into 16 distinct categories according to assets under management (above and below $10 million), as well as by investment strategies and asset classes.

Here are the top funds in some of the selected 16 categories with performance ranked as of October 2010.

Category Fund YTD Performance
CTA Programs Managing Global Ag LLC 87.90%
$10 Million and Above
CTA Programs Managing At Least D2W Cap. Mgt. 95.49%
$1 Million but Under $10 Million
Currency Traders Managing 24FX Mgt. Ltd. 48.89%
$10 Million and Above
Discretionary Traders Managing Global Ag LLC 87.90%
$10 Million and Above
Financial/Metals Traders Managing At EG Systems 52.10%
Least $1 Million but Under $10 Million
Multi-Advisor Funds Managing D’Best Futures 42.02%
More than $1 Million
Stock Index Traders Managing Stein Inv. Mgt. 19.53%
More than $1 Million
Options Strategies Managing LJM Partners Ltd. 29.83%
More than $1 Million
Source: BarclayHedge

It’s noteworthy that in examining the complete rankings, performance differs dramatically by asset class.  Specifically, agriculture benefited immensely from the historic rise in grain prices this summer, while equity index traders languished. These macro-conditions may not be repeated again, but this validates Woody Allen’s claim that “Ninety percent of life is just showing up.” The challenge is showing up at the right location, or at least in the right asset class.

As investors consider the benefits of taking greater risks to pursue greater profits, managed futures should be included in this discussion.

Chuck Epstein does not hold any positions in these funds.

Article printed from InvestorPlace Media,

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