As part of our monthly series of spotlighting one of our Liquid Alternatives preferred holdings, I would like to provide some color on the AQR Managed Futures Mutual Fund (symbol: AQMNX). There are a few different ways to get exposure to managed futures. We think the best liquid and cost-efficient way to do so is by using a single manager option vs. a multi-manager option, which means there are not multiple layers of fees. Although this fund is managed systematically, the firm’s principals have been managing trend-following strategies for institutional clients since the mid-1990s. We are big fans of the managers who have some of the best alternative experience in the business. AQR was founded in 1998 and is headquartered in Greenwich, CT, and also have satellite offices in Chicago, London, and Sydney. I personally visited their Chicago offices and was very impressed with everything, particularly the culture. Their philosophy and approach is deeply grounded in empirical finance research.
Managed futures investing is an alternative investment strategy in which portfolio managers look to profit from identifying short and/or long term trends via the use of future contracts. Introducing futures into a portfolio reduces risk because of the negative correlation between asset groups.
This managed futures fund invests in commodities, equities, currencies, and fixed income – they gravitate to the spot where the research is identifying the best trend. They also work in both short-term trends (one to three months) and long-term trends (up to 12 months). Both long and short positions are employed. Of course, we think the best part of this strategy is the non-correlation it brings to the table which ultimately offers more protection to your overall portfolio should the stock market fall off. If stocks head south, this fund has no correlation and is doing its own thing. In 2008 when stocks got torn apart, managed futures was one of the only strategies that really excelled. With the equity bull market being “long in the tooth” and with fixed income not the most attractive place to be right now, we really like holding this position within our Liquid Alternatives Model and clients’ portfolios.
Again, alternatives provide an additional asset class that can produce new sources of returns with lower correlation and reduced volatility. We expect volatility and returns for the alternative portion of one’s portfolio to be somewhere between what you would expect of stocks and bonds, with an extra bonus emphasis on downside protection. We continue to watch this exciting area of investment management for continued opportunities and use this forum as an educational tool.
Please don’t hesitate to reach out to the DWM team if you have a particular question on liquid alternatives and/or just want to say ‘Hi’!