Managed futures may underperform if the Iran shock results in erratic market conditions.

Managed futures strategies—often referred to as Commodity Trading Advisors (CTAs) or trend-followers—are built to perform best in environments where major macroeconomic shifts generate sustained trends across equities, bonds, commodities, and currencies. With geopolitical tensions rising due to the conflict involving Iran, the current market environment may become a significant test for these strategies.

Current Positioning

Using the SG Trend Indicator from Societe Generale Prime Services as a proxy for industry positioning, the latest asset-class exposures are outlined below. It should be noted that actual exposures may vary depending on each manager’s contract selection and portfolio construction methodology. The SG Trend Indicator generates signals based on a 20-day versus 120-day moving average crossover, with position sizes increasing the longer the signal persists, while still being adjusted for expected volatility.

• Equities: Aside from a short position in NASDAQ futures, positioning remains long across both U.S. and developed international equity markets.
• Commodities: Long positions are held in precious and base metals, crude oil, and livestock contracts, while short exposure is concentrated in agricultural commodities such as coffee, cocoa, and cotton.
• Bonds: Positioning is mixed across regions and maturities. There is a short position in the middle segment of the U.S. Treasury curve, though overall directional exposure remains relatively limited.
• Currencies: Long positions are held in the euro, British pound, Canadian dollar, and Mexican peso against the U.S. dollar, while the U.S. dollar is long against the Japanese yen.

Potential Impact of Rising Geopolitical Risk

Historically, periods of heightened geopolitical tension tend to trigger a flight to safe-haven assets, broad risk-off sentiment, and sharp increases in energy prices. Based on the positioning outlined above, the potential implications may include:

• Equities: If equity markets continue to decline, current long exposure could weigh on performance in the near term. However, since trend signals remain relatively moderate, a deeper or more prolonged sell-off could eventually shift positioning toward net short exposure.
• Commodities: Crude oil prices have already moved sharply higher, which supports the existing long positioning in energy markets.
• Bonds: Demand for government bonds—particularly U.S. Treasuries—typically rises during periods of market stress. With current exposure across Treasuries relatively balanced between long and short positions, changes in investor demand along the yield curve could influence future positioning.
• Currencies: A move toward traditional safe-haven currencies could put pressure on strategies currently holding short U.S. dollar exposure in the short term.

Key Takeaway

The conflict involving Iran has injected significant macro uncertainty and volatility into global markets. For managed futures strategies, such conditions highlight their role in providing dynamic diversification through both long and short exposure across equity, bond, currency, and commodity futures markets.

In the near term, gains are likely to be supported by existing long exposure to energy markets. However, long equity positions and short U.S. dollar exposure may act as a drag on returns. For managed futures to generate meaningful crisis alpha, sustained price trends are essential. Without persistent directional moves, strategies may face whipsaw conditions where signals frequently reverse—an environment that tends to be particularly challenging for the industry.

Within the managed futures space, maintaining a diversified allocation across sub-strategies remains important. These may include short-term momentum, volatility breakout systems, pattern-recognition models, and traditional trend-following approaches. Additional diversification across markets and time horizons within trend-following strategies is also recommended.

Sources: Adam Turnquist