A reader was kind enough to put a new fund in front me that runs a managed futures strategy. It's been around for a while but I'd never heard of it; AlphaSimplex Managed Futures. It's a 5 star fund per Morningstar. The symbols are an alphabet soup like all traditional mutual funds these days. The one that an RIA would use at a brokerage firm is ASFYX.
In all of these 'portfolio lab' posts over the summer we've used Guggenheim Managed Futures (RYMFX) which I owned for clients during the financial crisis but have been out for many years, maybe 12 or 13 years since I owned it. This post isn't a deep dive, I just learned about the fund this morning, this post is more of an introduction, a look over my should as I try to figure it out because it has done noticeably better than RYMFX. Let's start with a head to head via portfolio visualizer.
Portfolio 1 is 100% ASFYX and Portfolio 2 is 100% RYMFX. The cumulative difference is shocking and not attributable to just one year, more like 5 years out of the 10.5 studied.
I might know what accounts for the difference. ASFYX doesn't just use a 10 month/200 day moving average for trend following. 10 month/200 day is part of it but there is also a shorter term trend embedded in the strategy. As well as RYMFX has done this year, ASFYX might have been able to short the bond market sooner than RYMFX leading to the better result this year. It also appears that ASFYX uses more leverage than RYMFX, quite a bit more. Where these funds are long favorable trends and short unfavorable trends, the effect is that they leverage down not leverage up. Anything can wrong at any time of course but the track records are long enough that you can see how infrequently that happens. Per the literature from AlphaSimplex, there have only been five calendar quarters where both the strategy and the S&P 500 both were negative and in the 10.5 years I studied, there were only three such quarters.
I've been writing about Standpoint Multi Asset Fund (BLNDX/REMIX) for 2.5 years since I first bought in (still hold personally and for clients). BLNDX is essentially 50/50 stocks/managed futures. Let's try this comparison.
And the result.
Yes, the time frame is short due to Standpoint's inception but it has been a wild 2.5 years. Standpoint was the winner but I wouldn't have been bummed with the 50/50 SPY/ASFYX blend. Clearly RYMFX has lagged.
The reader who sent me this fund though was most interested in how ASFYX would fit into the 70/20/10 SPY/client & personal holding BTAL/RYMFX portfolio as a substitute for RYMFX and again we'll compare to VBAIX as a proxy for a 60/40 portfolio. Here's the context.
Longer term result.
And shorter term result.
Both portfolios with managed futures and BTAL looked similar to VBAIX until VBAIX "stopped working." The difference though between using ASFYX or RYMFX was much less than I would have expected given how much better ASFYX did head to head against RYMFX.
This post is all based on a first impression, it would be a gross exaggeration to say I know ASFYX. If my observations about shorter trend and more effective use of great leverage are correct (don't know yet) then I would ask why would someone choose RYMFX over ASFYX?
One thing I need to sort out to try to answer that question is this chart from the fund company.
The correlation averages -0.05 per AlphaSimplex but you can see it swings regularly from pretty highly correlated to pretty negatively correlated and back kind of all the time. That allowed the fund to do so much better than RYMFX. I couldn't find a correlation number to the the S&P 500 but it appears to be more reliably negative between RYMFX and the S&P 500.
More first impression is RYMFX more reliably negatively correlated and the massive outperformance of ASFYX head to head didn't have a huge impact in a small allocation as part of a diversified portfolio.
Still more work to do but this was a fun exercise and of course I am intrigued because it did so well for a strategy I don't expect to do well except as a proxy for "crisis alpha" which is a term I've used a few times and is specifically mentioned a couple of times in the AlphaSimplex literature.
