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Alternative Market Briefing

CTAs urged to fine-tune teamwork portfolio strategy to deliver more - Newedge

Friday, November 06, 2009

By Christine Gaylican, Opalesque Asia:

Damien Hatfield, founder of Sydney-based Hatfield Advisors, recently wrote in a commentary that CTAs should be more straightforward in explaining what they do.

The Newedge Group tried to minimise all the head-spinning technicalities about strategies in choosing the best managers and their portfolio-building strategies with its latest study, “A New Look at Building Teamwork Portfolios.”

CTAs should strike a balance between correlations and Sharpe ratios

The study is actually a review of its Nov-2007 work, “Superstars vs. teamwork,” which became an industry reference in building portfolios of CTAs. It introduced the strategy of choosing between correlations and Sharpe ratios.

Although it still is an effective gauge in choosing the right set of managers, Newedge recommends striking a balance between the two would be best.

Focusing on just one important factor like correlations and volatility would be faulty as a manager could not ignore the importance of returns.

“In practice, one cannot completely sidestep the question of returns. Nor can one ignore other questions that arise when doing due diligence on managers. Investors must comb through a large number of potential candidates to arrive at a set who meet well defined minimum standards. At least one of these standards is the promi......................

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