The Forecast for Managed Futures FundsWhat Caused Managed Futures to Underperform and How Futures will managed funds perform in a rising interest rate environment?IntroductionRecently, there has been speculation regarding recent performance in a poor performance environment. of the future managed industry. Therefore, the question arises: "is the recent performance of managed futures a cyclical trough or a structural deficiency" and, as interest rates reach historic lows, "how can futures managed assets will behave in an environment of rising interest rates? This article will explore the possible implications that may have caused the managed futures industry's recent difficulties and discuss what the future may hold for such strategies in a rising interest rate environment.BackgroundUp to 'Until recently, managed futures strategies offered high probabilities of generating positive returns, with very low correlation to equity and fixed income markets, and the ability to outperform in the event of financial crisis. When the dust settled in 2008, the managed futures sector outperformed all other markets. After the financial crisis, only two markets generated positive returns: managed futures funds and fixed income. The average managed futures fund increased by 18 percent, while many individual managed futures funds increased by 40 percent.1 Conversely, all other markets on average suffered a decline Significantly, U.S. stocks fell 37 percent, REITs 37.34 percent and international stocks 43.39. percent, and commodities fell 48.49 percent.2 The positive performance of managed future funds in such a negative environment opened the eyes of many investors and sparked rapid demand for managed future funds. Assets in managed futures strategies increased 120 percent between 2007 and 2011, to 188 billion...... middle of paper ......re sharply month over month. As the chart below shows, the performance of managed futures has increased, while the performance of stocks has steadily declined. The equities sector outperformed managed futures as interest rates fell, producing returns of 1.0 percent on a weighted monthly average, while managed futures produced 0.14 percent . Conversely, however, as rates rose sharply, managed futures returned 1.03 percent, while the equities sector was down -0.73 percent. The chart indicates that not only are managed futures contracts independent of rate direction, but managed futures funds are also uncorrelated with the stock market.6 Higher interest rates will also drive returns higher for the cash portion of the managed futures portfolio. Although cash collateral cannot generate income, it is prone to higher contribution in the managed futures portfolio. Possible CTA options