Managed Futures ETF: the Alpha Question

Chidem Kurdas

The first time I interviewed Tim Pickering almost two years ago, he managed the Claymore Natural Gas Fund trading on the Toronto stock exchange in addition to the Auspice diversified managed futures program. Earlier this month I interviewed him again for Opalesque Futures Intelligence, a publication I edit.

Tim has been busy. He’s developed a third-generation commodity index, the basis of another Claymore ETF on the TMX, and a managed futures index, with a corresponding ETF in the pipeline.   A third-generation commodity index  aims to get the upside of commodity returns while avoiding some of the downside. It’s meant to be a better way to get commodity exposure.  But what does a managed futures index do? I asked Tim that question. 

To be clear, the index does not claim to capture the performance of Tim’s Auspice diversified program, although the same commodity trading advisor skills came to play in creating the index. It would be an amazing ETF if it did track the Auspice program. Since its inception in 2007, the latter had an annualized return almost double that of the relevant index and higher than some big, well regarded managers such as Winton and Man Group’s AHL.

Instead, the managed futures index is a way of getting what Tim calls CTA beta. It does not give you the gain from distinctive manager skill, or alpha, but a return that represents the CTA sector as a whole. You could instead invest in a portfolio of CTAs, but that is a lot more expensive than the 95 basis points the managed futures ETF is to charge.

The other major advantage of the index over group of managers is that it’s transparent. You will know exactly what you’re getting.

This is an interesting development to watch, that’s for sure.

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