(Bloomberg) -- Global markets from stocks to oil are suffering their worst start to a year since at least 2009 when the financial crisis ended. For a small group of money managers, that's great news.
Managed futures mutual funds — investment pools that use computers to follow trends across asset classes — returned an average of 6.4% this year through Feb. 11, according to data compiled by Bloomberg for 22 U.S. funds with at least $100 million in assets. Investors poured $1.5 billion into the strategy in January, the most ever in a single month, data from Chicago-based Morningstar show.
The funds benefited from a series of powerful moves: the decline in stocks globally, the rise in government bonds, the fall in commodity prices and the related drop in currencies tied to commodities. While managed futures can do well in periods when equity markets are strong, they tend to do best in bear markets, said Alexander Healy, one of the managers of the $3.3 billion ASG Managed Futures Strategy Fund.
"These funds have the potential to thrive in a hostile market environment," said Healy, whose fund gained 11% this year through Feb. 11. "They are designed to deliver crisis returns."
Hedge funds have used managed futures for decades, and the strategy is also among the top performers in that industry this year. The $2.7 billion Cantab Capital Partners Quantitative Fund returned 8.41% in January, and BlueTrend Fund, run by Leda Braga's Systematica Investment, gained 7.48% in January, according to an investor document. Cantab declined to comment. An official for Systematica didn't immediately return an e-mail seeking comment.
In the last five years, the strategy has caught on among retail investors, looking for alternative investments whose returns are not correlated to stocks and bonds. Managed future mutual funds had $25.8 billion in assets as of Jan. 31, up from $17 billion a year earlier, according to Morningstar.
The funds use computers to identify trends across a range of asset classes, and then trade futures contracts to follow those trends. That flexibility gives them the ability to make money across a broad range of markets, whether things go up or down, as long as the trend is sustained.
They don't come cheap, and they can be difficult to understand. The mutual funds charge an average of $2.05 per $100 invested, which is a lot when compared with the $1.22 average for U.S. stock funds, Morningstar data show.
"Fees can be egregiously high and transparency is often very low," Morningstar analyst Josh Charney wrote in a note on the firm's website last year.
The funds have not always been stellar performers. The SG Trend Index, a common industry benchmark, lost ground in 2011 and 2012, years without strong directions in the markets, say managers of the funds. The index rose 20% in 2014, helped by rallies in government bonds. In 2015 the index was little changed.
"Last year was a good example of a time when the strategy struggled," said Matthew Dorsten, co-manager of the $344 million Pimco Trends Managed Futures Strategy Fund.
Global stocks fell in the third quarter, then reversed course in the fourth quarter. The change happened too quickly for managers to profit from, said Dorsten, whose fund rose 14% in 2016, the best performance in the group, data compiled by Bloomberg show.
This year a series of pronounced trends has provided a strong tailwind. The MSCI All-Country World Index lost 10% this year through Feb. 12. Oil has declined 22% to about $29, the biggest decline since the start of 2009. Yields on U.S. Treasuries last week fell to the lowest in more than three years.
"Globally investors have pulled back from risk assets and are buying assets they perceive to be safer," said Yao Hua Ooi, one of the managers of the $11 billion AQR Managed Futures Strategy Fund. The AQR fund, the industry's largest, attracted $2.5 billion last year and $625 million this year through Feb. 10, according to data compiled by Bloomberg.
The funds have done well in other stock market downturns. The SG Trend Index gained 26% in 2002 and 21% in 2008, years when the S&P 500 lost 22% and 37%, included reinvested dividends.
Josh Charlson, another Morningstar analyst, said the funds can be out of favor for long periods of time and there is no way to know when they will bounce back.
Still, he said, "they have a role to play in a portfolio if you are (looking) for something that won't perform like your stocks and bonds."
With assistance from Nishant Kumar.
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