While opinions vary on exactly what makes an investment "alternative", there is a broad consensus that investors should be aware of alternatives and the potential benefits they can provide. Read more...
In this paper we attempt to update Professor Lintner's work by demonstrating that the beneficial correlative properties of managed futures presented in his research persist today. …The findings of his work, namely that portfolios of equities and fixed income exhibit substantially less variance at every possible level of expected return when combined with managed futures, remain as true as ever more than twenty-five years later. Read more...
There is no uniform definition of alternative investments or definitive list of alternative assets. This book examines the four broadest and largest categories of alternative investments: hedge funds, private equity, real assets, and structured products.”. Read more...
Since the latter half of 2007, a number of significant macroeconomic factors have dominated the global investment landscape. What started out as a bursting of the housing bubble in the United States turned into a cascading series of events that eventually threatened the entire global financial system in 2008 and 2009.
At the heart of the financial crisis are several key issues: ill-conceived and poorly constructed financial derivatives products, an overleveraging of consumer and financial institutions, the collapse of the housing market, a slowdown in consumer spending , and a precipitous fall in employment. As a result, many fundamental investment strategies based on micro-level analysis of company specific situations have had their difficulties.
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In the paper, Kat noted that while adding hedge fund exposure to traditional portfolios of
stocks and bonds increased returns and reduced volatility, it also produced an undesired side
effect — increased tail risk (lower skew and higher kurtosis). He went on to analyze the effects of
adding managed futures to the traditional portfolios, and then of combining hedge funds and
managed futures, and finally the effect of adding both hedge funds and managed futures to the
traditional portfolios. He found that managed futures were better diversifiers than hedge funds;
that they reduced the portfolio's volatility to a greater degree and more quickly than did hedge
funds, and without the undesirable side effects.
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Excerpted with permission of the publisher John Wiley & Sons, Inc. from Trend Following with Managed Futures: The Search for Crisis Alpha.
Trend following is one of the classic investment styles. This chapter tells the tale of trend following throughout the centuries. Before delving into the highly detailed analysis in subsequent chapters, it is interesting to discuss the paradigm of trend following from a qualitative historical perspective.
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Sam Priyadarshi knew the Federal Reserve’s March statement was good for the Treasury market before he’d read a word of it. Just as the statement was released, Vanguard Group’s head fixed-income derivatives trader saw a chart of 10-year Treasury futures prices go vertical. The price move, a jump in trading volume, and other indicators of market depth all flashed bullish signals for Priyadarshi’s team on the trading floor of Vanguard’s “Goliath” fixed-income building in Valley Forge, Pa. Goldman Sachs analysts later said the statement was one of the most dovish releases since the financial crisis. Read more...
As we mentioned in a previous article on options prices and the ‘Brexit’ vote, traders of British pounds (GBP) are much more concerned about the possibility that the United Kingdom (U.K.) might leave the European Union (EU) than are euro (EUR) traders. Normally, GBP implied volatility is lower than that for the euro. This relationship has reversed sharply in recent weeks ahead of the June 23 vote. Read more...
The cost of rolling futures contracts on the S&P 500 fell to its lowest level in more than six years in March, throwing cold water on a long-held theory that regulatory changes hitting bank balance sheet capacity could permanently increase the cost of synthetic equity exposure. Read more...
Sustaining the success of a new "Ultra" Treasury future will depend on the buy in of asset managers. A new futures contract at CME Group that tracks the world’s primary government bond benchmark has flourished since its launch in January as investors adjust to a world of low interest rates and heftier capital costs for holding bonds. Read more...
Persistent differences in interest rates across countries account for much of the profitability of currency carry trade strategies. The high-interest rate “investment" currencies tend to be “commodity currencies," while low interest rate “funding" currencies tend to belong to countries that export finished goods and import most of their commodities. We develop a general equilibrium model of international trade and currency pricing in which countries have an advantage in producing either basic input goods or final consumable goods. Read more...
Alternative investment vehicles have always been around. However, unlike their more traditional counterparts (i.e. mutual funds, stocks, and bonds), they have generally been limited (until recently) to only institutional investors and high-net-worth individuals. Given the low-interest rate environment that has prevailed over the last decade, investors have become more aggressive in their quest for higher yields and diversification. Read more...
The data and time dependency of empirical financial research is a common concern to both academics and practitioners. Changes in regulatory, trading and investor environments may result in dramatic changes in the underlying viability of any investment vehicle and/or trading process. This is especially true for managed futures programs for which a single commonly used database does not exist and which often are dynamic in nature and are impacted by changes in trading instruments and underlying markets. Read more...
Passive strategies strive to match the performance of a market index. Portable alpha strategies go further, combining key benefits of active and passive management in an effort to enhance returns while also managing risk – especially important goals in today's lower-return markets. Read more...
Most investment strategies are susceptible to suffering devastating losses during equity market crisis. Given this, for almost any investor, the key to finding true diversification is in finding an investment which is able to deliver performance during these turbulent periods. The recent losses of the credit crisis have also reinforced to investors the importance of understanding why a particular investment strategy makes sense. For any new or current investor in Managed Futures, it is well known that these strategies tend to perform well when equity markets take losses making them an excellent candidate for diversifying a portfolio. Read more...
2011 was a period fraught with turbulence in financial markets. Managed Futures strategies, despite their common association with long volatility, did not fare as well as some might have expected amidst this turbulence. A closer look at volatility, what it means to be long or short volatility, and Managed Futures performance across different regimes in volatility can provide insights into the strategy’s complex or "convex" relationship with volatility. Read more...