Quant Investing – Top 3 Managed Futures Strategies Outperform the Market

Today, we are going to share one of the most successful categories of investing in 2022. Quant investing with managed futures has been one of the hottest trades of 2022. 

Quantitative investing has been used primarily by highly sophisticated firms over the past twenty years. As computer processing speeds have continued to grow, investment companies have taken advantage of these methods to build returns that can outperform market benchmarks. 

Historically, these investing methods have only been attainable through hedge funds with high investment minimums and management fees. Luckily, as investors have become more sophisticated, investment firms have begun to offer mutual funds that allow investors access to these types of quantitative investment strategies. More fund managers have entered the space. Creating investment opportunities that can be accessed by the main street investor.

This article aims to educate investors on the inner workings of quant investment funds. We will dive into the benefits and risks of these types of strategies, along with the different strategies available to the retail investor. 

What is Quant Investing

Quant investment strategies have been a continuously growing method in the investment universe. They are mainly driven to make investment decisions that exploit market inefficiencies. Thanks to outstanding performance in 2022, managed futures (a type of quant investing) have become a well-known strategy to most investors. 

So now, what exactly makes up a quantitative investing strategy? Typically, these actively managed funds are set up with a computer algorithm, built from complex mathematical models. In layman’s terms, the investment manager will create numerical rules to create an investment strategy within the algorithm. These rules are often based on common measures of market value, helping the algorithm determine overvalued or undervalued assets. Often, the asset manager will use proprietary models based on historical data to detect investment opportunities. Some applications of these models will be built with machine learning and artificial intelligence. This creates the potential for better risk management and outperformance of a benchmark index.

These rules allow the strategy to make decisions without human involvement. As we know, humans are emotional beings, and these types of quant investment strategies allow for emotions to be removed from the investment process. 

The general fund will then use these statistical rules to follow the major trends in the market. The fund can go long or short with varied amounts of exposure to each sector. This brings about a consistent approach that can help diversify investment portfolios, while also driving additional return.

Benefits of Quant Investing through Managed Futures

More and more investors are becoming keen to use managed futures due to the benefits they can bring to a portfolio. 

Hands off approach with a consistent mandate.

Managed futures allow for a portion of an investor’s portfolio to run without emotion. As retail investors, many are tasked with dealing with emotional or behavioral decisions within their investment journey. Managed futures funds allow for returns to be driven by a programmed investment mandate that executes a consistent strategy.

Well Diversified Strategy 

Successful managed futures strategies have offered positive historical returns, along with low correlations to the stock and fixed income market. This is a plus for investors that want to have a position in their investment portfolio that can protect against market drawdowns and still drive returns during market rallies. 

The diversification of managed futures funds is driven by the significant investment universe they are able to invest. For example, these strategies can choose to go with long or short equities, fixed income, commodities, and currencies. 

Risks of Managed Futures

High Levels of Volatility

Since managed futures can cover practically every inch of the investment universe, the underlying contracts can add high levels of volatility to portfolios. Much like other alternative investments, managed futures can lead to high performance compared to benchmarks, but also add a bit more risk to a portfolio. 

Underperform in quick corrections or flash crashes.

Although quant strategies typically add a level of diversification to portfolios, they are susceptible to quick market drawbacks. Such phenomena, called “flash crashes”, can tend to cause managed futures strategies to not meet their goal. This is due to managed futures relying on momentum and trends in the market.

How has quant investing performed?

As a quick aside, for anyone interested in the history of managed futures, check out this article by Altavra.

Overall, it is relatively difficult to examine the historical performance of managed futures funds. 

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One reference investors can use is the Lipper Alternative Managed Futures Funds Index. It combines ten recognized managed futures strategies and averages the performance of the group. 

Some of the most notable managed futures funds available to investors are the PIMCO TRENDS Managed Futures Strategy (PQTAX), American Beacon’s AHL Managed Futures (AHLYX), AlphaSimplex’s Managed Futures Strategy (ASFYX), and Abbey Capital’s Futures Strategy (ABYIX).  

Since 2013, the average annual return of managed futures strategies underperformed equities by a substantial margin. However, they have been shown to add alpha to portfolios when equities tend to have historic, long downturns. Such is the case in 2022. Whereas of September 30th, 2022, the Lipper Managed Futures Index had outperformed the S&P 500 by more than 40% YTD. 

Types of Investment Strategies Available

There are many different strategies available to investors looking to add quantitative investing strategies to their portfolios with managed futures. Most are in the form of mutual funds offered by investment managers at large firms. To our knowledge, there are no ETF versions of a managed futures fund offered by institutional investment management companies or asset managers. Institutional investors, investment professionals, and investment fund managers alike tend to lean toward these portfolios when they see signs of deteriorating market conditions. 

A list of the recognized managed futures funds by Refinitiv can be found in the screenshot below.



As technology continues to improve, more investors will be able to take part in quantitative investing methods through other investment securities. Historically, investing in a private hedge fund manager has been the best way to gain access to quant investing strategies. Now, there are more options available where investors can lean on a team of portfolio managers to create a system that makes its own investment decisions.

Quant investing through managed futures offers investors the ability to diversify their portfolios and protect against prolonged downturns in the market. This tends to enhance portfolios’ risk-adjusted returns. However, investors should remain weary that they can underperform in choppy, flat markets or during quick market reversals.

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I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Nothing on this site nor any published commentary by The Investor Weekly is intended to be investment, tax, or legal advice or an offer to buy or sell securities. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and should not be considered a complete discussion of all factors and risks. Data quoted represents past performance, which is no guarantee of future results. Investing involves risk. Loss of principal is possible. Please consult with your investment, tax, or legal adviser regarding your individual circumstances before investing.

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Every investor’s situation is different. Positions can change at any time without warning. Please do your own due diligence and consult with your financial advisor, if you have one, before making any investment decisions. The author is not acting in an investment adviser capacity. The author’s opinions expressed herein address only select aspects of potential investment in securities of the companies mentioned and cannot be a substitute for comprehensive investment analysis. The author recommends that potential and existing investors conduct thorough investment research of their own, including a detailed review of the companies’ SEC filings. Any opinions or estimates constitute the author’s best judgment as of the date of publication and are subject to change without notice.

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