In Brexit Rout, Managed Futures Funds Emerge as Big Winners

Is It Time to Get Back in the Stock Market?
  • Trend-based investing approach benefits from sharp moves
  • AQR Managed Futures Strategy Fund rallies 5.2% after vote

As the U.K.’s vote to leave the European Union roils global markets, a small group of funds is thriving.

Societe Generale SA’s gauge of managed futures funds -- investment pools that use computers to follow trends across equities, bonds and currencies -- gained 1.8 percent Friday when the British vote caused global stocks to tumble the most since 2011. The $13.4 billion AQR Managed Futures Strategy Fund, the industry’s largest, has rallied 6.3 percent since Friday. The $104 million Arrow Managed Futures Strategy Fund gained the most among 36 funds tracked by Bloomberg, rising 8.7 percent over the past two days.

Trillions of dollars have been wiped from global equity values since Britons voted to secede from the EU, raising concern that an already-fragile global economic recovery will falter. Managed futures funds have stood out, benefiting as the so-called Brexit magnified existing market trends, including the decline of the pound and the rally in safe-haven assets from bonds and gold to the Japanese yen.

‘Powerful Moves’

“Some long-term trends have had very powerful moves,” Stephen Scott, a Phoenix, Arizona-based money manager at Longboard Asset Management Ltd. The $579 million Longboard Managed Futures Strategy Fund gained 7.7 percent since Friday.

The aftershocks of the U.K.’s vote continued to reverberate across financial markets Monday after a weekend of political turmoil.

MSCI Inc.’s benchmark for global stocks fell 2.2 percent Monday, after losing 4.8 percent Friday, the biggest selloff since 2011. The pound touched a three-decade low of $1.3121. U.S. Treasuries rallied, sending 10-year yields to a four-year low of 1.44 percent, while gold rose to the highest since 2014.

The AQR fund, managed by a team led by Clifford Asness, held 4.5 percent of its assets in gold futures at the end of March, according to its website. It also sold short stocks in Japan and Hong Kong, while betting U.S. Treasuries and Italian bonds would rise. The rally Friday helped it reverse its loss for the year.

Until last week, managed futures funds, known for charging high fees for complex strategies usually reserved for sophisticated investors, had been struggling this year. After profiting from the global equity selloff in January and early February, the funds were hobbled by trend-less, range-bound movements. The SG Trend Index has lost 1.9 percent through last week, after gaining 23 percent in the previous three years.

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