Monday, January 12, 2009

Where the returns were in 2008

Are you looking for where the investment returns were in 2008? Look no further, they were in managed futures funds.

[...] boon for managed futures funds, which climbed more than 13% last year. Hedge funds, by comparison, were off around 21%.
What are managed futures funds?

Managed futures are different from long/short funds and natural resource sector mutual funds. Managed future funds trade futures contracts and other derivatives. This allows them to take long and short positions. They use futures to make bets on oil and other commodities, as well as stocks and bonds. They tend to do well in markets with a lot of volatility, which we had in abundance last year (and still have now), and not as well in low volatility markets:
In 2005 and 2006, when stocks were steadily rising, the Chicago Board Options Exchange Volatility Index—the infamous VIX "fear index" that measures whether fluctuations in equities are weak or wild—dipped to a low of around 10. During those two years, managed futures funds overall eked out gains of just 1.7% and 3.5%, according to research firm BarclayHedge, compared with 10.7% and 12.4% for hedge funds.