PIMCO Trends: Managed Futures: Seeking Diversification and Returns

Managed futures strategies have historically delivered attractive returns over the long run with low equity correlations. Yet not all funds have consistently delivered positive returns in periods of sudden “crisis volatility.”

Managed futures strategies have produced positive returns during sustained equity market downturns, but not all funds are designed with the agility to generate “crisis alpha” during periods of sudden volatility. Matt Dorsten, co-portfolio manager of the PIMCO TRENDS Managed Futures Strategy Fund, and Christopher Santore, product strategist, talk with Mike Connor, product strategist, about how funds differ in their objectives and design.

Q: What are reasonable long-term objectives for managed futures strategies?

Dorsten: Managed futures strategies use systematic trend-following to pursue a valuable set of objectives: positive returns over long holding periods, diversification through negative equity correlation, and crisis alpha through positive returns across periods of sustained market volatility.

Over the long-run, trend-following strategies have delivered returns that are similar to equity markets, with lower volatility and a negative correlation to equities, attracting allocations from investors seeking diversification from equity risk (see Figure 1).

Figure 1: Managed futures have delivered equity like returns over the long runImage Pop Up