Wed, Jul 23, 2014
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Opalesque Futures Intelligence

How to Develop an Uncorrelated Managed Futures Portfolio

Friday, January 13, 2012

Part One of a Five Part Series

The holy grail of investing is to develop an investment vehicle that operates during a variety of market environments.  In this article, we are going to discuss the first key to developing an uncorrelated managed futures portfolio: recognizing performance drivers.

In this article we are going to address a very basic concept: recognizing the macro performance driver.

When investing in stocks, for instance, many micro factors can influence a stock's price: earnings, management changes, distribution problems, legal issues are just a few examples of the many factors associated with the individual stock that can influence a stock price.  For our purposes, however, these individual factors are not of concern, but rather the macro performance driver.  On a macro level, stocks are generally driven by economic strength.  When the perception of economic strength is intact, stocks in general are likely to experience a positive market environment - and when the market environment turns negative, stock values can fall in unison.  This is particularly the case during a credit or debt crisis, when "most assets correlate to one." It is this period of crisis that should be a primary concern for designing the uncorrelated portfolio, a period of systematic risk that Nobel Prize winner William Sharpe has said is the reason it is impossible to "diversify" a portfolio with different stocks.

The problem with most investments is they are primarily driven at a macro level by economic strength.  Stocks, real estate, long only commodities are all examples of investments that primarily benefit from economic prosperity and suffer during times of economic stress.

Understanding the macro performance driver of most investments is the key to developing the uncorrelated portfolio.  In the next Opalesque Futures Strategies, released at the end of this month, we will review the various macro performance drivers in managed futures and demonstrate how to develop an uncorrelated investment portfolio that depends not on economic strength, but rather the market environments of price persistence, price dislocation and volatility.



 
This article was published in Opalesque Futures Intelligence.
Opalesque Futures Intelligence
Opalesque Futures Intelligence
Opalesque Futures Intelligence
Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing
  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Events – AIMA Australian Hedge Fund Forum, Sept. 16, Sydney[more]

    AIMA Australia invite you to join us at our annual Hedge Fund Forum on Tuesday 16th September 2014 at the Sofitel Sydney Wentworth. The AIMA Australian Hedge Fund Forum is a non-profit hedge fund conference organised by the industry for the industry, featuring quality Australian and internation

  2. Opalesque Exclusive: Loeb, Grantham cite growing economic concerns in letters[more]

    Bailey McCann, Opalesque New York: Hedge fund manager Daniel Loeb, head of Third Point, and Jeremy Grantham of Grantham, Mayo, Van Otterloo & Co. have both released their quarterly investor letters today. While news is positive on some fronts, and both men see pockets of opportunity, they also h

  3. Investing – Hedge funds expect Netflix earnings to catapult forward, Third Point's Loeb takes stakes in Fibra Uno, YPF, Royal DSM, Lake Capital in talks to back Engine Group[more]

    Hedge funds expect Netflix earnings to catapult forward From Investing.com: Netflix has made major strides forward in 2014 despite ongoing battles with the FCC and cable companies over the issue of net neutrality. The FCC has now received over 500,000 comments from the public on its pend

  4. Opalesque Roundtable: Success in hedge fund marketing not linked to performance, but investor appetite[more]

    Komfie Manalo, Opalesque Asia: Success in marketing a fund is not linked to the performance, but to investor appetite, to the way you can market the fund, and to how much time you can spend to raise assets, said Antoine Rolland, the CEO of incubator and seeding firm

  5. Hedge fund manager Winton Capital making headway with long-only strategy[more]

    From PIonline.com: North American investors are helping Winton Capital Management Ltd. make progress — albeit slowly — toward its founder's goal of becoming a $100 billion company. The firm's ticket to quadrupling its assets under management is unlikely to be one of its scientifically designed manag