Trends Watch: Investing in Managed Futures

EisnerAmper’s Trends Watch is a weekly entry to our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms. If you’re interested in being featured, please contact Elana Margulies-Snyderman.

This week, Elana talks with Cole Wilcox, Founder & Chief Investment Officer, Longboard Asset Management.

What is your outlook for investing in managed futures?

During 2021-2022, multi-asset systematic trend strategies experienced unusually high returns amid inflationary trends. Significant movements in commodities and interest rates during this period were extremely profitable, providing strong, non-correlated returns against stocks and bonds. In my experience, managed futures trend strategy performance tends to ebb and flow with surprising macroeconomic themes. The stronger the dislocation of a macro theme, such as unexpected inflation, the more pronounced the trend signal and the resulting profitability of these strategies. In more predictable macro conditions, trend strategies often produce poorer results due to weaker trend signals.

As of 2023, with the market's reduced concern about rampant inflation, we've seen a reversal of previous trends, leading to diminished trend performance. Without the emergence of an unexpected macro event that significantly shifts the market, it is probable that managed futures will not perform as strongly as they did during the high inflation period of 2021-2022. It is also characteristic of these strategies to have intermittent peaks of performance, and predicting when these will occur is just as complex and error prone as forecasting the stock market’s movements.

Where do you see the greatest opportunities and why?

Generally speaking, many investors are overly reliant on traditional investments like stocks and bonds, which, while historically effective, come with significant risks. The greatest opportunity lies in constructing a diversified alternatives sleeve within an investment portfolio. This can include incorporating non-correlated strategies like managed futures alongside other liquid alternative investments. Managed futures, known for their potential volatility and inconsistency when used as a stand-alone strategy, can play a pivotal role in a diversified portfolio. However, the true value emerges when these are blended with other liquid alternative strategies, such as hedged equity strategies. This multi-strategy approach aims to enhance portfolio resilience and performance across various market conditions, making it a compelling opportunity for investors seeking a balanced and reliable investment strategy.

What are the greatest challenges you face and why?

Viewing challenges as opportunities for growth has been a guiding principle in my decades-long effort to champion the benefits of liquid alternatives through our products. The foremost challenge lies in truly understanding the psychology of retail investors to create an investment strategy that not only attracts but also retains their engagement. The human element of investing is frequently underestimated by those more comfortable with quantitative analysis, who may not have firsthand experience advising retail clients. A particularly instructive experience was the rise and fall of our first liquid alternatives fund, which illustrated that success isn't solely about performance metrics. Despite performing as anticipated, the fund did not meet the broader market's need for emotional engagement and reassurance. It demonstrated that excellence in a spreadsheet analysis could still overlook the crucial factor: the emotional journey of the end retail investor.

What keeps you up at night?

I have teenage kids; teenagers keep me up at night! Besides that, if I can’t sleep it’s usually related to a late-night dessert. I’ve noticed that sugar consumption is a sleep destroyer for me. In all seriousness, I live by the motto “only the paranoid survive.”  This pushes me during the day to ask: What have we missed?  What do we think is true that is actually false? Those are the things that I’m most concerned with. Knowing that I have spent my day asking those questions generally allows to me to rest well and wake up to do it all over again the next day.

The views and opinions expressed above are of the interviewee only, and do not/are not intended to reflect the views of EisnerAmper.