Managed-futures funds cool down

Managed-futures funds, which finished 2008 as one of the best-performing alternative strategies, hit a bump in January, thanks to a lack of any clear directional market trends. According to the latest report from Lipper Inc. of New York, managed-futures strategies, which rely on proprietary technical models to identify market trends and directional bias across multiple asset classes, fell by 1.9% last month. In 2008, the average managed-futures fund shot up 18.3%. Of course, the January dip still looks good, compared with the Standard & Poor’s 500 stock index’s 8.6% loss, but it does raise questions about whether managed futures are heading for a less stellar stretch. “These are strategies that are trying to benefit from clear price trends, and in general it appears those types of strategies were out of favor in January,” said Aureliano Gentilino, Rome-based global head of hedge fund research for Lipper. According to Mr. Gentilino, those managed-futures funds with more than $45 million under management fared best during the month, declining 1.2% on average. It is too early to speculate on how managed futures are doing this month, but Mr. Gentilino said the managers will have to get more nimble if they hope to match the same kind of non-correlated returns they generated last year. “February might also be a difficult month for managed futures,” he said. “It looks like commodity prices will stay in narrow ranges and interest rates are about as low as they can go, but there are still potential opportunities in currency trading.” As an example of how managed-futures funds can thrive during periods of extreme directional bias and turmoil, 60% of the strategy’s 18.3% return last year came in the final three months. By way of comparison, the S&P’s fourth-quarter decline of 29.6% represented 77% of the index’s 38.5% full-year decline.