Month: January 2025

As We See It: Macro Thoughts

/ mtlucasmacro

At Mount Lucas we run both discretionary macro and systematic Managed Futures strategies.

  • While macro outlooks are useful for understanding Managed Futures returns, they aren’t very predictive (the “following” part of trend following). However, rule of thumb, they tend to do well when volatility increases in macro markets.
  • Managed Futures picks up a risk premium from hedgers on both sides of the markets, that risk premium shifts with uncertainty.
  • We have a new administration coming in shortly that sees volatility as a feature for negotiating leverage and has big macro policy goals.
  • These policy goals run directly through the macro instruments we trade – bond yields, currencies and commodity markets.
  • Investors need exposure to these macro markets to help diversify traditional investments.

Where do we see sources of volatility relative to the markets we trade?

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Managed Futures – Overcoming Human Bias

/ mtlucasmacro

2022 was a fantastic year for showcasing the benefits of adding Managed Futures to the portfolio. Inflation rears its ugly head after 40 years and commodities rip higher during the Ukraine War. Managed Futures, offering exposure to both the long and short sides of return distributions, got you long commodities and short bonds. No other asset class brought you that kind of protection in 2022. Not Gold, not TIPS, not Bitcoin. However, after down single digits in 2023, and another flat to down year in 2024 amid strong stock market results, the naysayers return.

Managed Futures – computers love us! Humans…not so much. Why is that? Take pretty much any sufficiently long Managed Futures track record, or index, run it through asset allocation models and efficient frontiers, the answer is pretty much always the same. Uncorrelated returns, with strong negative correlations in periods of market stress, lowers overall portfolio volatility and drawdowns. The efficient frontier goes up and to the left, improved returns, lower volatility, better portfolio Sharpe. The quants, and CFAs, and nerds all agree…on paper it works. For the seasoned veteran, the RIA, the institutional consultant, holding Managed Futures in a portfolio through time, not so easy with the clients.

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