Managed futures strategy


In this article, Youssef LOURAOUI (Bayes Business School, MSc. Energy, Trade & Finance, 2021-2022) presents the managed futures/CTAs strategy. The objective of the managed futures strategy is to look for market moving trends across different asset markets.

This article is structured as follow: we introduce the managed futures strategy principle. Then, we present the different types of managed futures strategies available. We conclude with a performance analysis of this strategy in comparison with a global benchmark (MSCI All World Index and the Credit Suisse Hedge Fund index).


According to Credit Suisse, a managed futures strategy can be defined as follows: “Managed Futures funds (often referred to as CTAs or Commodity Trading Advisors) focus on investing in listed bond, equity, commodity futures and currency markets, globally. Managers tend to employ systematic trading programs that largely rely upon historical price data and market trends. A significant amount of leverage is employed since the strategy involves the use of futures contracts. CTAs do not have a particular biased towards being net long or net short any particular market.”

Managed futures make money based on below points:

  • Trend following strategy: the trading rationale behind is that trending markets will tend to keep the same direction
  • Combine long and short term indicators:
  • Diversify across different markets: at least one market should move in trend
  • Leverage: the majority of managed futures funds are leveraged in order to get increased exposures to a certain market

The methodology for the managed futures strategy can be described below:

  • Identify appropriate markets: Concentrate on the markets that are of interest for this style of trading strategy
  • Identify technical indicators: This step is based on understanding the key technical indicators to assess if the market is trading on a trend
  • Backtesting: The investor will test the indicators retained for the strategy on the market chosen using historical data and assess the profitability of the strategy across a sample data frame. The important point to mention is that the results can be prone to errors. The results obtained can be optimised to historical data, but don’t offer the returns computed historically.
  • Execute the strategy in out of sample: This step is important to see if the in-sample back testing result is similar to the out of sample.

This strategy makes money by investing in trending markets. The strategy can potentially generate returns in both rising and falling markets. However, understanding the market in which this strategy is employed, coupled with a deep understanding of the key drivers behind the trending patterns and the rigorous quantitative approach to trading is of key concern since this is what makes this strategy profitable (or not!).

Types of managed futures strategies

Managed futures may contain varying percentages of equity and derivative investments. In general, a diversified managed futures account will have exposure to multiple markets, including commodities, energy, agriculture, and currencies. The majority of managed futures accounts will have a trading programme that explains their market strategy. The market-neutral and trend-following strategies are two main methods.

Market neutral strategy

Market-neutral methods look to profit from mispricing-induced spreads and arbitrage opportunities. Investors that utilise this strategy usually attempt to limit market risk by taking long and short positions in the same industry to profit from both price increases and decreases.

Trend following strategy

Trend following strategies seek to generate profits by trading long or short based on fundamental and/or technical market indicators. When the price of an asset is falling, trend traders may decide to enter a short position on that asset. When an asset is going in the other direction, trend traders may enter a long position. The objective is to collect gains by examining multiple indicators, deciding an asset’s direction, and then executing the appropriate trade.

Investors interested in managed futures can request disclosure documents outlining the trading strategy, annualised rate of return, and other performance metrics.

Performance of the managed futures strategy

Overall, the performance of the managed futures were overall not correlated from equity returns, but volatile nature(Credit Suisse, 2022). To capture the performance of the global macro strategy, we use the Credit Suisse hedge fund strategy index. To establish a comparison between the performance of the global equity market and the managed futures strategy, we examine the rebased performance of the Credit Suisse managed futures index with respect to the MSCI All-World Index. Over a period from 2002 to 2022, the managed futures strategy index managed to generate an annualised return of 3.98% with an annualised volatility of 10.40%, leading to a Sharpe ratio of 0.077. Over the same period, the Credit Suisse Hedge Fund Index managed to generate an annualised return of 5.18% with an annualised volatility of 5.53%, leading to a Sharpe ratio of 0.208. The managed futures strategy had a negative correlation with the global equity index, just about -0.02 overall across the data analysed. The results are in line with the idea of global diversification and decorrelation of returns derived of the managed futures strategy from global equity returns.

Figure 1. Performance of the managed futures strategy compared to the MSCI All-World Index and Credit Suisse Hedge fund Index across time.
 Managed futures
Source: computation by the author (Data: Bloomberg)

You can find below the Excel spreadsheet that complements the explanations about the Credit Suisse managed futures strategy.

Managed futures

Why should I be interested in this post?

Understanding the profits and risks of such a strategy might assist investors in incorporating this hedge fund strategy into their portfolio allocation.

Related posts on the SimTrade blog

   ▶ Youssef LOURAOUI Introduction to Hedge Funds

   ▶ Youssef LOURAOUI Equity market neutral strategy

   ▶ Youssef LOURAOUI Fixed income arbitrage strategy

   ▶ Youssef LOURAOUI Global macro strategy

   ▶ Youssef LOURAOUI Long/short equity strategy

   ▶ Youssef LOURAOUI Portfolio

Useful resources

Academic research

Pedersen, L. H., 2015. Efficiently Inefficient: How Smart Money Invests and Market Prices Are Determined. Princeton University Press.

Business Analysis

Investopedia Managed Futures CTA

Credit Suisse Hedge fund strategy

Credit Suisse Hedge fund performance

Credit Suisse Managed futures strategy

Credit Suisse Managed futures performance benchmark

About the author

The article was written in January 2023 by Youssef LOURAOUI (Bayes Business School, MSc. Energy, Trade & Finance, 2021-2022).

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