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Opalesque Futures Intelligence

How Do Trend / Counter Trend Volatility Managers Generate Alpha? Can Alpha Be Passed From Generation to Generation?

Wednesday, May 22, 2013

Can a managed futures trading strategy be passed from generation to generation?

In the next two articles we profile two interesting trading programs - one a well known, generally prudent trend follower who keeps a keen eye on volatility management.‚  They started as a typical trend follower but have matured the portfolio substantially, particularly after enhancing portfolio risk management, time horizon diversity and investment style diversity both in trend and non-trend space post 2007/2008 .‚  The question becomes: how will this algorithm handle debt crisis volatility?

In the second interview we look at an emerging CTA that loves volatility in every sense of the word.‚  Typically utilized as an investment only by highly knowledge fund of funds professionals, this CTA can exhibit wild triple digit swings - and is designed for crisis alpha.‚  But will his counter trend method of volatility trading stand up to the next crisis?‚  Will risk exposure to two beta market environments - volatility and convergence to a mean - enable fund of fund managers to capture stable alpha through an emerging manager?

The other question to watch is the transformation of a systematic trading program from one generation to the next.‚  Unlike a discretionary manager - heavily reliant on the trading skill of the original manager - can a systematic program transfer trading skills from generation to generation?

This article was published in Opalesque Futures Intelligence.
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