The question for many in the managed futures industry at the CTA Expo in Chicago last month was where the next opportunity will come from.
Several years now into the next big thing – managed futures mutual funds or 40 Act Funds – there is great hope and great potential for the product, depending on who you speak with. It could be the product that zaps the managed futures industry out of its doldrums and finally brings this sector into the mainstream investing circle in a big way. Others see wrinkles in the product that need to be ironed out.
Ed Egilinksy, managing director, head of alternatives for Direxion, said that “the potential is rather significant.” Direxion’s partnership with Auspice Capital on its Direxion Indexed Managed Futures Strategy Fund is a managed futures mutual fund with about $75 million in investments. Direxion has about $9 billion in ETFs and managed futures. Not a home run, Egilinsky admits. “The asset class has been a little out of favor,” he said.
After all, the CTA space in general and this product has not performed all that that well in recent years. The BarclayHedge CTA Index posted negative returns in each of the past three years from 1.4 percent to 3 percent. And so far this year, the index is posting a modest 2.2 percent rise while the stock markets are posting record highs.
But Egilinksy says that the story about managed futures mutual funds, and managed futures, isn’t being told, especially when one thinks about volatility.
“If you look at other investments, the peak to valley has been far less severe than you’ve seen in REITs or even commodities,” Egilinsky said.
Indeed, the roller coaster ride that many investors have taken in equities is far less rough than the one most investors have ridden in the CTA space. Nonetheless, this is a “what have you done for me lately” investing public. Retail investors, who may be tempted to jump into the managed futures mutual fund space, want to see real returns and outperformance. Many don’t want to hear about how it can serve as a shock absorber, diversifier or even a portfolio saver when the markets turn.
Egilinsky said there is still education to be taught about the managed futures space. If this stock market is indeed overheated, it may be another lesson for the investing public that managed futures can smooth out returns over time if you are patient.
“Investors are always looking at the liquid alternative space,” Egilinsky said.

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