Media Release
31. May 2021

Three years of successful long/short multi-asset management: Bantleon Diversified Markets

On the occasion of its third anniversary, the management of Bantleon Diversified Markets can present a successful track record: The systematic managed futures fund has successfully navigated several difficult capital market phases since its inception on 30 May 2018. Not only was the fund able to largely compensate for the heavy capital market losses at the end of 2018 and the beginning of 2020, but it was also able to generate considerable positive returns within the current rise in interest rates thanks to a high negative duration. In all scenarios, the fund thus achieved its goal as an effective diversifier in investors' asset allocation. This is also reflected in the fund’s risk-return profile: even in an unprecedented market phase such as the first quarter of 2020, the volatility remained within the defined range. Since inception, the fund has generated a return of almost 5% p.a. with a volatility of 9.9%.

This positive development recently led to a nomination of Bantleon Diversified Markets for the HFM European Performance Awards, which will be announced on 6 July 2021 in London. The fund was shortlisted among the best seven funds in the category »Newcomer – managed futures«. Bantleon Diversified Markets is part of Bantleon's alternative strategies, which sum up to roughly EUR 150 million assets under management.

Simple management approaches are not enough anymore

With its stable development, Bantleon Diversified Markets is a good example for the diversification effect of managed futures funds, which are once again coming into the focus of institutional investors in view of rising interest rates. »The instruments, which have brought substantial performance and joy in the past ten years, cannot defuse the problem of rising interest rates and, moreover, can even lead to disappointment,« warns Stephan Kuhnke, CEO and Head of Asset Management. »Equities in particular have benefited from the TINA argument 'There is no alternative' and are – like almost all asset classes – extremely highly valued. Even those who see little risk here and, conversely, hope that the losses of bonds resulting from rising interest rates will be compensated by equities that continue to surge could be badly disappointed.«

Research shows that the negative correlation between equities and bonds is mainly valid in risk-off phases, when equity prices come under strong pressure and bond prices rise strongly thanks to the flight in safe havens. In risk-on phases, though, when interest rates rise due to positive economic momentum, the negative correlation is much less noticeable. »The stabilising function of a managed futures fund in the overall portfolio may not have been important in the past, but looking ahead, this is precisely what will become the decisive characteristic,« Kuhnke explains. »In the future, it will no longer be possible to generate high absolute returns with very simple management approaches such as a 60/40 portfolio or risk parity concepts.«

Many managed futures funds have been split into sub-strategies

»However, investors can no longer assume that all managed futures funds are designed to be saviours in times of need,« Kuhnke warns. »As their stabilising function has hardly been necessary since the global financial crisis of 2008/2009, the managed futures market has become highly fragmented in recent years. What most investors associate with managed futures, namely long/short trend following with a globally diversified futures universe, is now no longer the standard, but only a sub-segment.« The large providers in particular no longer pursue a complete absolute return approach, but offer the associated components individually. This decomposition into sub-strategies such as carry, value and asset-class momentum can ultimately be seen as a passivation of managed futures strategies. »For the very experienced investor, this opens up many possibilities to put together a portfolio from the individual components. However, this also transfers part of the responsibility for performance from the asset manager to the investor,« Kuhnke points out.

Behaviour in difficult market phases as an important selection criterion

»Investors searching for broadly diversified managed futures strategies should ask the following questions,« advises Kuhnke: What is the fund's objective and does it deliver what the asset manager promises? Is it diversified in itself? How has it behaved in past difficult market phases? »For example, you don't have to look for interest rate rises in the past, because they were very rare. However, equity market corrections can be used as an indication of how a strategy behaves in the event of an interest rate rise, because these phases are similarly difficult to handle. If all these points are taken into account, some managed futures funds can be found that offer both effective diversification and a good performance contribution in normal capital market phases.«