Thu, Oct 19, 2017
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Opalesque Futures Intelligence

Two Minutes With Matt Osborne of Altegris

Thursday, July 25, 2013

By Mark Melin

Investors who bought into the uncorrelated, liquid alternatives managed futures message have been disappointed recently, noted Matt Osborne of Altegris Advisors, co-author of the recently released white paper "Is the Trend Your Friend?"あ Written with Lara Magnusen, a director at Altegris, the white paper studies the long term performance characteristics of managed futures and perhaps most significant explains the beta market environment that contributed to managed futures relative under performance.

Matt Osborne is director of Altegris Funds. Altegris was among the early managed futures brokerage firms to offer the investment in a mutual fund product structure. Previous to Altegris he was Director of Research for Managed Investments at Man Financial.

Mark Melin (MM): How important is an understanding the market environment in terms of setting appropriate performance managed futures expectations?

Matt Osborne (MO): It's critical.あ Understanding not only the current environment as well as having a historical framework is key to developing a long -term perspective.あ All asset classes go through cycles, ensuring investors understand these cycles helps investors to better understand the diversification benefits of managed futures as well as manage their performance expectations.

MM:あ On a historical basis trends have always been a component of market environments.あ How important is the mean reversion aspect of trends appearing and not appearing in markets.あ Winton's David Harding is quoted as saying: "Trends come and go and we can't predict when they will come next, but we know they will come."あ Could managed futures be set for a period of mean reversion?あ IE: is the strategy "due" for a resumption of trends?

MO: Mr. Harding is correct; we can't predict.あ Based on experience, however, I think trend following managers are potentially poised to capitalize on future breakout movements in the markets. We witnessed significant market reversion post May 22nd - when Bernanke hinted that QE tapering was on the horizon.あ It appears as if we may be moving from a mean-reverting phase of prior years to a trending phase-providing a ripe environment of opportunity for trend followers over the remainder of 2013.

MM:あ In the white paper, you mention markets "Whipsawing between risk-on and risk-off environments constrains trend persistence."あ What will it take for this type of non-productive trend following environment to change?

"When will things improve? A bedrock principle of managed futures is that they simply require persistence of trends-in either direction-in order to potentially deliver strong returns."

MO: We've essentially had a perfect storm for trend following managers. Thankfully, the damage has been minimal in our view vs. drawdowns in long only asset classes.ああ When will things improve? A bedrock principle of managed futures is that they simply require persistence of trends-in either direction-in order to potentially deliver strong returns. We've seen some signs of increased price persistence already.あ The true catalyst could be a number of things, from increased volatility, a persistent rise in interest rates, to less government intervention in financial markets.

MM:あ With the potential for the Fed to pull back from manipulating the yield curve, does this have potential for market trends to re-emerge?あ What has been the impact of QE on the managed futures industry at large?

"With tapering potentially on the horizon, you can see by just looking at a chart of the 10-year, that trend looks to have reversed. QE has also hurt trend followers because it has created a domino effect of global deleveraging."

MO: QE has both helped and hurt.ああ The Fed bond buying program has helped interest rate trends, pushing yields to historical lows - creating the ultimate "don't fight the Fed" trend.あ With tapering potentially on the horizon, you can see by just looking at a chart of the 10-year, that trend looks to have reversed.ああ QE has also hurt trend followers because it has created a domino effect of global deleveraging.あ As various countries essentially manipulate their currencies, FX markets have become increasingly choppy and difficult for trend following managers.あ In general, I think as the Fed and governments become less involved in introducing new or continuing existing policies, it will create the potential for trends across markets to re-emerge - since markets will rely more heavily on historical market drivers and not having to try and navigate and interpret what certain policies mean and don't mean and the impact those policies may or may not have.

MM:あ Altegris is known as traditionally allocating assets heavily in the trend following category.あ There is no doubt it is the most predominate strategy with a valid beta market environment.あ What degree of value, if any, do you find in relative value or volatility strategies not dependent on the market environment of price persistence?

MO: There is a great deal of value; these strategies take a different approach to finding alpha, the merits of which is a much deeper discussion.

MM:あ What is the difference between a trend and momentum strategy?

MO: Not everyone may answer this same way, but in our view, momentum strategies are a type of trend strategy that is seeking directionality.あ They are agnostic as to whether markets have momentum on the downside or upside.

MM:あ What's the key point, the drop dead line, you want people to take away from this report?

MO: We want to acknowledge that it has been challenging for managed futures managers and those invested in managed futures.あ At the same time, we hope that readers understand that no one can time a market's topあ and bottom perfectly-and those who maintainあ a long-term allocation to managed futures, in our view, have the opportunity to experience the mostあ complete range of potential benefits offered by the strategy.



 
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. Regulatory - David Stockman: Trump tax reform overhaul is a pipe dream, stocks are heading for 40-70% plunge, Carried interest tax: How much does it matter?, Odey sees 'terrifying' mix in MiFID, tapering, asset values, Hedge funds come together to share cost of MiFID and research, SEC turns up the heat on U.S. investment advisers, India's Sebi asks hedge funds to report investments in commodity derivatives[more]

    David Stockman: Trump tax reform overhaul is a pipe dream, stocks are heading for 40-70% plunge From CNBC.com: David Stockman is warning about the Trump administration's tax overhaul plan, Federal Reserve policy, saying they could play into a severe stock market sell-off. Stockman, the R

  2. North America - Puerto Rico rejects loan offers, accusing hedge funds of trying to profit off hurricanes[more]

    From TheIintercept.com: Puerto Rico has rejected a bondholder group's offer to issue the territory additional debt as a response to the devastation of Hurricane Maria. Officials with Puerto Rico's Fiscal Agency and Financial Advisory Authority said the offer was "not viable" and would harm the islan

  3. Investing - WPP targeted by short-selling American hedge fund, Sun co-founder sells secretive hedge fund on big chip trade[more]

    WPP targeted by short-selling American hedge fund From Cityam.com: An American hedge fund has mounted a bet against WPP, the world's largest advertising group, with a trade worth almost £90m. Lone Pine Capital has built a short position worth 0.51 per cent of the FTSE 100 company,

  4. Hedge funds up as industry adjusts to rising rates[more]

    Komfie Manalo, Opalesque Asia: Hedge funds have reshuffled their portfolio after nearly four weeks of rising rates as the Lyxor Hedge Fund Index was up +0.2% from 19 September to 26 (+1.1% YTD), fuelled by strong results of global macro funds, Lyxor Ass

  5. Manager Profile - How the world's hedge fund king used 'idea meritocracy' to become a billionaire[more]

    From Forbes.com: In 1982, Ray Dalio made what he calls the biggest mistake of his life. He made a bet that there would be an economic collapse stemming from a debt crisis. And he was wrong. He lost money. He lost his client's money. He had to let people go from his firm and borrow money from his dad