Wed, Apr 16, 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
Banner
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. CTAs could face new challenges in a rising rates environment[more]

    Bailey McCann, Opalesque New York: CTAs have taken a beating performance wise lately, and asset flows reports show that investors aren't sticking around to see how the movie ends. Now, a new white paper from Roy Niederhoffer and Coen Weddepohl notes that as interest rates start to tick back u

  2. Investing – Big hedge funds bought Puerto Rico's junk bonds, Fidelity explores new trading venue amid flash trade concerns, Crisis-era Greek bonds reward early buyers with big effective returns, Cargill unit discloses stake in Freddie preferred[more]

    Big hedge funds bought Puerto Rico's junk bonds From Reuters.com: Several large hedge funds doubled down on Puerto Rico in last month's giant bond sale despite the U.S. territory's financial struggles, the Wall Street Journal reported, citing confidential documents reviewed by the newspa

  3. Commodities – Popular value fund manager David Iben bets on Russia, gold,[more]

    From Reuters.com: With large bets on Russia and North American gold miners, one of the best performing stock pickers in the wake of the 2008 financial crisis is back with a new fund that reflects his deep aversion to following the crowd. In the Kopernik Global All-Cap Fund, David Iben is follo

  4. Opalesque Exclusive: Pensions, endowments, family offices reconsider life settlement investments[more]

    Bailey McCann, Opalesque New York: Hedge funds were once the largest investors in the life settlement industry, now the industry is seeing more interest from pensions, endowments and family offices directly. Life settlements have always been considered a niche part of the investing landscape, an

  5. SEC allows investment funds to use social media[more]

    Bailey McCann, Opalesque New York: The Securities and Exchange Commission (SEC) has released new guidance letting investment funds and advisors use social media to promote client reviews. The guidance seeks to assist investment managers in developing compliance policies and procedures reasonably