Question #3

Managed futures strategies are typically characterized as highly liquid, active across a wide range of asset classes, and able to go long or short with relative ease. High liquidity results from futures markets being among the most actively traded markets in the world. Futures contracts also provide highly liquid exposures to a wide range of asset classes that can be traded across the globe 24 hours a day. Because futures contracts require relatively little collateral to take positions as a result of the exchanges' central clearinghouse management of margin and risk, it is easier to take long and short positions with higher leverage than traditional instruments. The returns of managed futures tends to be very cyclical. Between 2011 and 2018, the directionality of foreign exchange and fixed-income markets deteriorated, volatility levels in many markets dissipated, and periods of acute market stress temporarily disappeared. Except for equity markets in some developed countries, many markets became range- bound or mean-reverting, which hurt managed futures. The diversifying benefit of trend- following strong equity markets is also less diversifying to traditional portfolios than if such trends existed in other non-equity markets. The value added from managed futures has typically been demonstrated during periods of market stress; for example, in 2007–2009 managers using this strategy benefitted from short positions in equity futures and long positions in fixed-income futures at a time when equity indexes were falling and fixed-income indexes were rising.