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August 29, 2014 at 07:12 AM
This is the fifth in a series of blogs exploring the use of liquid alternatives by advisors, based on reporting conducted among advisors for the August 2014 Investment Advisor cover story, Alts Are the Answer.
As we discussed in our last blog, “Can Managed Futures be an Income Investor’s Best Friend?,” managed futures offers significant diversification potential for investors in high-yield bonds. We now shift our attention to other areas of the credit curve.
The table below shows the performance of managed futures (as measured by the Barclay BTOP50 Index) during the ten worst drawdowns for the Barclays Investment Grade Bond Index since January 1987. Generally speaking, the longer the losing period for such bonds, the more diversification potential is afforded by managed futures.
| Table 1: Performance of Managed Futures (BTOP50 Index) |
|||||
| Depth |
Peak |
Trough |
Months |
BTOP50 |
|
| 1 |
-15.4% |
2/29/2008 |
10/31/2008 |
15 |
2.3% |
| 2 |
-6.8% |
1/31/1994 |
6/30/1994 |
14 |
5.7% |
| 3 |
-6.2% |
2/28/1987 |
9/30/1987 |
10 |
22.3% |
| 4 |
-5.0% |
4/30/2013 |
6/30/2013 |
11 |
-2.9% |
| 5 |
-4.6% |
5/31/2003 |
7/31/2003 |
6 |
-4.2% |
| 6 |
-4.2% |
1/31/1996 |
5/31/1996 |
8 |
-2.9% |
| 7 |
-4.0% |
1/31/1999 |
8/31/1999 |
17 |
5.8% |
| 8 |
-3.8% |
3/31/2004 |
5/31/2004 |
4 |
-5.6% |
| 9 |
-2.9% |
8/31/2005 |
5/31/2006 |
11 |
7.0% |
| 10 |
-2.4% |
11/30/1996 |
3/31/1997 |
5 |
4.1% |
| Avg. |
-5.5% |
10.1 |
3.2% |
||
Source: Bloomberg, QES.
The same conclusions can be reached when the analysis shifts to municipal bonds as shown in Table II below:
| Table 2: Performance of Managed Futures (BTOP50 Index) |
|||||
| Depth |
Entry |
Exit |
Months |
BTOP50 |
|
| 1 |
-8.3% |
1/31/1994 |
11/30/1994 |
13 |
3.9% |
| 2 |
-6.5% |
2/28/1987 |
5/31/1987 |
10 |
17.6% |
| 3 |
-6.2% |
4/30/2013 |
8/31/2013 |
11 |
-5.2% |
| 4 |
-5.7% |
8/31/2008 |
10/31/2008 |
5 |
4.9% |
| 5 |
-5.0% |
8/31/2010 |
1/31/2011 |
10 |
4.0% |
| 6 |
-4.6% |
1/31/2008 |
2/29/2008 |
6 |
4.8% |
| 7 |
-3.9% |
5/31/2003 |
7/31/2003 |
5 |
-4.2% |
| 8 |
-3.6% |
1/31/1999 |
1/31/2000 |
16 |
4.5% |
| 9 |
-3.1% |
2/29/2004 |
5/31/2004 |
5 |
-6.4% |
| 10 |
-2.3% |
1/31/1996 |
5/31/1996 |
7 |
-2.9% |
| Avg. |
-4.9% |
8.8 |
2.1% |
||
Source: Bloomberg, QES.
