Our newsletter is out, and once again, we’re sharing a great piece of research from our friends over at Quest Partners. We think the team over at Quest Partners includes some of the smartest in the business, and we’ve posted their periodic research pieces in our newsletter before – so we were thrilled to get one of their new research pieces in our inbox last week.
In their latest white paper (if you’d like a copy, email us and we’ll send you one), Quest looks at the data and reasoning behind using managed futures as a hedge to an equity portfolio. And not just as a diversifier (more on that in a bit), but what really caught our eye were some of the zingers/takedowns/eye-openers aimed at the large trend following managers in the managed futures world.
Quest pulled no punches in their assessment:
– Large [trend following] managers are today in an opaque place from a style perspective
– …All of these style drifts have had the effect of reducing their ability to hedge equity drawdowns
– Despite the ease with which most CTA strategies and indices can now be replicated, most CTAs remain heavily opaque and protective when it comes to describing their trading strategies.
– The large CTAs that comprise the BTOP50 are effectively long the SP500 Beta, long hedge fund like strategies and long FX Carry
– TF managers have reduced their core style exposure and increased: equity correlated risk-on trading, longer term trading and directionally biased trading on the long side of the market.
– Large liquidity-constrained CTAs [have] higher exposure to Fixed Income and longer term time frames [, but ] The ability of Fixed Income to continue to provide equity hedging is questionable.
– [Large trend followers’] incremental contribution to the risk–adjusted returns of a hedge fund portfolio is, as we have shown, near nil.
Ouch – the battle is on. Click through to see what they found.
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.
Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.
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Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.
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