When Managed Futures Stumble, History Says: Stick Around

2025 hasn’t been an easy year for trend followers. In fact, it’s been downright brutal. According to Virtus AlphaSimplex, the SG Trend Index—the benchmark for managed futures—fell a staggering -18.7% over the 12 months ending April 30th, 2025. That’s the worst performance in the Index’s 25-year history. Yes, even worse than the COVID crash.

But here’s the thing: this isn’t the first time trend-following strategies have hit a wall. And it might not be the time to walk away. It might just be the time to lean in.

Rollercoaster Year, Broken Trends

Virtus doesn’t sugarcoat it. They call this a “historically challenging period of performance,” and they’re not exaggerating.

Managed futures thrive when markets trend. But this year? Whipsaw central. A string of shocks—April’s "Liberation Day" in the U.S., the regional bank meltdown in 2023, the yen-carry collapse in 2024—sent markets into spasms. Short bursts of panic, swift recoveries, zero follow-through. That’s a recipe for pain in a strategy that lives off momentum.

As the report puts it, “large, yet short-lived stressful events” made trend formation nearly impossible. For investors, it felt like algorithms were chasing ghosts.

The “Patience Premium”: A Pattern Worth Noticing

Now for the good news.

AlphaSimplex introduces a compelling idea: the Patience Premium. Simply put, when managed futures suffer drawdowns, they often bounce back with gusto. Figure 2 in the report looks at the 10 worst declines in the SG Trend Index—and what happened next. Spoiler: they almost always recovered. In fact, only once (in 2003) did the strategy fail to produce gains in the year that followed.

Take this for example: after a -23% drawdown during the Iraq War in 2003, the index shot up +44.7% the following year. It happened again in 2009, 2015, and 2022.

“In all other periods of large drawdowns, the strategy found significant opportunities,” the report says.

So, maybe the recent carnage isn’t the end of the story. Maybe it’s the setup for what comes next.

Why Managed Futures Aren’t Broken

AlphaSimplex reminds us that managed futures aren’t designed to guess what comes next. They’re built to react. When trends develop—over months, not days—they step in. This approach shines during major market regime shifts: financial crises, inflation cycles, policy upheaval.

“They tend to do well when there are sustained macro changes that lead to strong trends.”

Right now, the world is anything but stable. The current macro backdrop—marked by rising stagflation risks and a shift toward deglobalization—could be fertile ground for long, sweeping trends. In other words, the kind of environment managed futures were born for.

Playing a Different Game

Here’s where it gets interesting. Despite the volatility, managed futures still bring something crucial to a portfolio: diversification that actually works.

Over the past 25 years, the SG Trend Index has delivered an annual return of 5.25%, right in line with a traditional global balanced portfolio (5.38%). But the correlation? Practically zero.

• S&P 500 correlation: -0.12
• Global bond correlation: 0.01
• Beta: -0.03

That means when everything else moves together—especially during crises—managed futures can still zig when others zag.

Sure, the ride can be bumpy. Volatility sits at 15.31%, with a historical max drawdown of -22.95%. But for investors who can weather the storm, the strategy has consistently added value over time.

A Cycle That Turns

All strategies have rough patches. Trend following is no exception.

“Managed futures performance is cyclical,” the report states. “With periods where it thrives and periods where it struggles.”

We're clearly in one of those struggling phases. But if history is any guide, these low points don’t last. They often mark the beginning of strong recoveries—especially when uncertainty gives way to clearer market direction.

“Managed futures strategies have tended to reward investors for their patience by proceeding to deliver periods of above-average performance when trends subsequently extend.”

Bottom Line

This isn’t the time to lose faith. Managed futures aren’t broken—they’re just waiting for their moment. And if the past is any indication, that moment may be right around the corner.

If you believe in resilience, in long-term discipline, and in the value of uncorrelated returns, the current drawdown isn’t a warning—it’s an invitation to stay the course.

Footnotes:

1 AlphaSimplex. Virtus Funds. "The Patience Premium - Staying the Course in Managed Futures after Drawdowns." May 2025