Panic Management

If a big drop in the S&P makes you want to sell, consider adding some “crisis alpha” to your portfolio.

- Daniel Fisher

For months Robert Sinnott’s $3.8 billion Natixis ASG Managed Futures Strategy Fund had been unprofitably shorting European equities, the British pound and commodities. Then on Friday, June 24, the day after the British voted to exit the European Union, those markets all plunged at once.

“Brexit was a wonderful time for us,” says Sinnott. “On that Friday we made money in every asset class.” By the close of trading Monday the Standard & Poor’s 500 had fallen 5%, but ASG Managed Futures was up 3%, pushing it solidly into the black for the year.

Make no mistake: ASG Managed Futures is still trailing the S&P this year. But in the aftermath of Brexit and other market-shaking events (see table, p. 67), it has achieved its goal: using futures and “momentum” or “trend” investing to make money when investors’ stock and bond portfolios are tanking. Boosters call that trick “crisis alpha”—alpha, of course, being returns in excess of the market.

Investors pay a 1.48% annual management fee for that alpha—expensive compared with an index fund but cheap compared with what they’d fork over to a private hedge fund. During its six-year life ASG Managed Futures has outperformed its hedge-fund peers with an annual return, net of fees, of 6.8%. That’s a little more than half the S&P’s return but a lot more than you’d make if you’d held extra cash as your sleep-at-night strategy. (Warning: The fees and returns cited are for the fund’s dominant Y-class shares, sold only through registered investment advisors or to those investing $100,000 or more. Smaller direct purchasers of A shares get hit with a 5.75% upfront load and a 1.7% annual fee.)