Alternative View: The Current Perspective on Managed Futures

an anemic recovery, has driven investors to the safety of fixed income despite meager yields. The resulting up-trend in bond prices has been the primary source of trend-following returns so far in 2010.

This prevailing trend has not been without its corrections, however. Positive economic sentiment in July drove capital back into equities but that optimism was short-lived. Weak U.S. economic numbers once again fueled the "buy bonds" trend in August as frail U.S. data, including the substantial decline of sales of existing homes and weak jobs report for the month of July, were announced.

Trends in the foreign exchange markets have been present throughout 2010, though not to the same magnitude as fixed income. Of course, the centric trade was in the euro. Severe sovereign debt concerns over Portugal, Ireland and Spain, along with critical default possibilities in Greece, caused a steady decline of the Euro in the first half of 2010. A concerted rescue effort by other European Union members, led by Germany, along with the International Monetary Fund (IMF), helped stem the tide regarding not only the viability of Greek debt but also of the sustainability of the euro itself. In addition, generally positive results from European bank stress tests resulted in a change in investor sentiment. With the market perceiving a possible end to a real crisis, the Euro rallied from a low in June of 1.19 to a high of 1.33 in early August, according to Bloomberg data. The currency subsequently retraced and ended August at 1.27, Bloomberg reported.

Most managed futures managers were profitable with different variations of the short Euro trade from the beginning of the year to early June. However, a number of longer-term managers were caught in the June reversal (with the euro rising) and have given back a portion of earlier profits.

The continued uncertainty of an economic recovery led to "choppy" (defined as no true sustained trend) markets within the commodities sector, with the one exception being gold, which is considered by some to be a safe-haven holding. For example, the energy markets have been, at best, unpredictable for the year. Without a solid base for demand, due to an unknown economic recovery and at times uncertainty regarding the pace of growth in China, markets have been sideways for most of the year. In fact, managed futures managers with higher portfolio exposure to commodities generally performed worse than managers focusing on financial instruments.

Where to go from here? I don't generally make market predictions, but the outcome of inflation versus deflation, "New Normal" or economic recovery, or any number of global geopolitical events is likely to create opportunity for market trends and the potential for success for managed futures managers. I look forward continuing to monitor and analyze these markets with you.

The Altegris 40 Index tracks the performance of the 40 leading managed futures programs, by ending monthly equity (assets) for the previous month, as reported to Altegris. The Altegris 40 Index represents the dollar-weighted average performance of those 40 programs.

The views expressed by the author are his own, and do not constitute an opinion or analysis of Altegris Advisors, LLC or its affiliates. The risk of loss in trading futures can be substantial.  You can lose all or a substantial amount of your investment and should only invest risk capital. Past performance is not necessarily indicative of future results.