AXS Insights

Keeping Nest Eggs Out of the Bear’s Reach

If the current economic outlook is heading towards recession — a prediction gaining traction — investors may want to turn to managed futures. History shows that the asset class can offer non-correlated ways to protect assets from bear markets, much like the bags that campers hang to safeguard their food.

Recession Performance: Managed Futures vs. US Equity and Hedge Fund Indices

Let’s look back at the two recessions since the millennium:

  • The 2001 recession brought on by the bubble, the Enron scandal, and the 9/11 attacks, and
  • The global financial crisis from 2007 to 2009.

If we examine index performance during these volatile periods, we observe that managed futures (represented by the BTOP 50 Index) outperformed US equities (S&P 500) and hedge funds (HFRI Fund of Funds Composite Index). Take a look.

20200408 Line chart with 3-31-20 data

*Sources: (i) Stocks: Bloomberg, S&P 500 Index, a market-capitalization-weighted index of the 500 largest U.S. publicly traded companies; (ii) Managed futures: BTOP50 Index, BarclayHedge, an index that replicates the overall composition of the managed futures industry; (iii) Hedge funds: Hedge Fund Research (HFR), HFRI Fund of Funds Composite Index, an index of portfolios comprised of multiple hedge funds; and (iv) Recession bands: National Bureau of Economic Research. All data as of 2/29/2020.

We also see that if you calculate the aggregate performance over the combined 28 months of the two recessions, managed futures considerably outperformed US equities by 50.91% and hedge funds by 23.61%.


Girding Against Recession

We all know past performance cannot predict the future, and the underlying factors behind each recession were unique to their times. Certainly, the recent precipitous drop into bear territory was catalyzed by the COVID-19 outbreak, an exogenous shock with vast global repercussions.

Nevertheless, the historical data does suggest that managed futures offers diversification benefits during recessionary periods. By design, CTA strategies are opportunistic, generally have no directional bias and can potentially generate returns even in down markets, as we have seen over time. They also can diversify broadly across more than 100 futures markets in commodities, equities, fixed income and currencies.

Given the uncertainty ahead, investors have good reason to consider enhancing their portfolios with managed futures.

Past performance is not a guarantee of future results. Investors cannot invest directly in an index. Index returns do not reflect any fees, expenses or sales charges. Returns are based on price only and do not include dividends. This chart is for illustrative purposes only, does not represent the AXS Investment Funds and is not indicative of any actual investments. These returns were the result of certain market factors and events that may not be repeated in the future.

1) Having a “long” position in a security means that you own the security. Having a "short" position in a security means that you are selling a stock you do not own.

2) The Investment Company Act of 1940 Investment Company Act of 1940 regulates the organization of companies, including mutual funds, that engage primarily in investing, and whose own securities are offered to the investing public.

This information is educational in nature and does not constitute investment advice. These views are subject to change at any time based on market and other conditions and no forecasts can be guaranteed. These views may not be relied upon as investment advice or as an indication of any investment or trading intent. This content should not be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any security by AXS Investments or any third-party. You are solely responsible for determining whether any investment, investment strategy, security or related transaction is appropriate for you based on your personal investment objectives, financial circumstances and risk tolerance. AXS Investments does not provide tax or legal advice and the information herein should not be considered as such. AXS Investments disclaims any liability arising out of your use of the information contained herein. You should consult your legal or tax professional regarding your specific situation. All investing is subject to risk, including the possible loss of the money you invest. Alternative investments may not be suitable for all investors.

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