Jason,
I enjoyed reading today's article on commodity futures trading as a possible addition to our portfolios. You rightly point out the survivorship bias that is present in commodity indexes such as the Barclay CTA Index. However, if 15% of the managers "disappear" from the data each year (the worst managers no doubt!), I suppose that the bad return that made them do so does too.
Furthermore, if you have to have 4 years of returns to get into the index, what happens to the performance of all the funds started that flame out in years 1, 2, and 3? (this group would be the worst of the worst) I don't think those numbers are in the returns either. Both of these omissions are not small and would have tremendous impact the the returns they are reporting.
Imagine if 15% of the companies in the S&P 500 dropped out each year and their performance was "disappeared" from the returns of the index. It would overstate returns hugely.
Does CTA stand for the commodity traders association? I think this index data may have been invented by commodity traders to help them market these high cost funds.
Christopher P. Van Slyke, CFP®
Should Managed Futures Be in the Cards for You?
Is your email in-box, like mine, suddenly full of pitches for "managed futures"?
The returns on this commodity-trading strategy don't look good -- they look spectacular. The average managed-futures program, as measured by the Barclay CTA Index, was up 14% last year -- beating the stock market by a staggering 51 percentage points. Run by commodity-trading advisers, or CTAs, these funds manage an estimated $199 billion and may traffic in anything from corn, cotton and crude oil to interest rates, currencies and stock indexes. They often use technical analysis and mathematical formulas to trade on price patterns.
Continue reading "Should Managed Futures Be in the Cards for You?" »
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