Dighton Capital Management, managed futures fund manager, believes that there is set to be a huge increase in the value of funds invested in this sector as investors look for better returns and to diversify their portfolios.
Managed futures funds are pools of futures or forward contracts, which are derivatives. The value of assets in these funds has grown from around $5 billion at the end of the 1980s to an estimated well over $300 billion today.
Dighton Capital Management, which has been operating since 2003 and manages three funds that have provided annualised returns of 46%, 18% and 24% has seen its AUM increase by 33% during the first six months of this year. During this period, it also received over 50% more enquiries from potential investors than the same period in 2009.
The company says that the industry’s ability to deliver high absolute returns, its high liquidity and transparency and its low correlation with equities and bonds are proving highly attractive to a growing number of investors – both retail and institutional. Indeed, new research from Dighton Capital Management shows that the average monthly correlation between the Barclay CTA Index and the S&P 500 for example, is just 0.04. The corresponding figure for the MSCI World Index is 0.11.
Alex Moiseev, Principal and Chief Investment Officer of Dighton Capital Management, said: “Our products actually benefited from the financial crisis. This is because we were able to take advantage of the increased volatility on markets during that time. A strong CTA manager can deliver attractive returns whether the markets are rising or falling.”
However, Dighton Capital Management warns that investors need to choose their CTA manager carefully because the quality varies considerably. Indeed, the company’s Dynamic Allocation MSP scans some 1,200 CTAs, and invests in only around 20.
Edward Gurary, Chief Executive Officer, commented: “You have to be very careful when selecting a CTA as the quality can vary dramatically from one trader to the next. You should look at a number of features including the length of their track record, their annualised return, Sharpe Ratio and Margin to Equity ratio. You should also look at the consistency of their volatility, the shape of their drawdown and recoveries and their investment and risk management procedures.
“You should also look to see how much a trader has invested his or her own money into their fund as this shows their level of commitment. Around 15% of our AUM has been invested by our management team.”
D.C.