Why would anyone invest in these funds?

globalarbtrader said:
Main benefit of CTA type strategies is the diversification benefit particularly in tail events (so Sharpe Ratio is a poor measure as it's symmetric, and any kind of CAPM type analysis isn't much better as it assumes linear correlations). There are numerous studies explaining this.

Basically you would expect to pay for an insurance policy that will protect you when the world ends and the rest of your portfolio tanks. If a CTA actually makes you money over time then that is a bonus.

The only other quantitative strategies that made money in 2008 were short biased equity (obviously) and tail protection type strategies (Taleb style smart buying of vol essentially). [Oh and Paulson et al; but that's hardly a repeatable methodology] Both of these have much lower SR than managed futures. That doesn't mean you shouldn't have them in your portfolio, but I'd probably give them less weighting.

100% in managed futures obviously wouldn't make sense, but a 20% allocation to a classic long only 80:20 portfolio will improve things significantly.

GAT

Disclosure; I used to work for AHL (another managed futures shop), I use managed futures type signals in my own trading (alongside a long only portfolio - as that is what makes sense), and I know (and respect) Ewan and many of his guys. So yes, I'm biased.
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No doubt, the pitching of managed funds as "diversification" is the trend (pun intended) du jour.

But this, to me, is smoke and mirrors: of what benefit is a -0.01 correlation to the S&P (Cantab) when the fund has basically made ZERO money in the last 4 years, all the while charging 20% and 1% and then 10% and 0.5% for its services? Taking into account the fees, whoever took comfort in being "diversified" with Cantab in the last 4 years actually lost money. 4 years is not a trivial period of time.

The fact that Cantab sold itself to another firm seems to strongly support a skeptical view of the industry at large, wouldn't you say, given the pedigree: ex Goldman Sachs head of quant division, astrophysicist etc. If the rocket scientists can't make any money over 4 years, it's hardly encouraging. I think the quant world is highly over-rated at best and is in a bubble right now.

So, to return the volley to you, is it diversification or "di-worse-ification" as Buffett would say it?

And btw, on that volatility claim, see:

https://www.bloomberg.com/gadfly/ar...utures-traders-can-quit-pining-for-volatility
 
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It really is a valid question. And even more so for hedge funds. Most funds are not impressive. I've offered to help, even offered to buy their firms, to no avail.
 
truetype said:
Not "du jour." The diversification angle of managed futs has been whitepapered for decades.
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It may have been whitepapered for decades, but no one can deny that there's been a recent growing trend, like never before, towards advocating investing in managed futures for "low correlation" benefits regardless of absolute returns... Everybody and their grandma is saying "look here, no returns, but hey we's got low correlation!"
 
Maverick1 said:
No doubt, the pitching of managed funds as "diversification" is the trend (pun intended) du jour.

But this, to me, is smoke and mirrors: of what benefit is a -0.01 correlation to the S&P (Cantab) when the fund has basically made ZERO money in the last 4 years, all the while charging 20% and 1% and then 10% and 0.5% for its services? Taking into account the fees, whoever took comfort in being "diversified" with Cantab in the last 4 years actually lost money. 4 years is not a trivial period of time.

The fact that Cantab sold itself to another firm seems to strongly support a skeptical view of the industry at large, wouldn't you say, given the pedigree: ex Goldman Sachs head of quant division, astrophysicist etc. If the rocket scientists can't make any money over 4 years, it's hardly encouraging. I think the quant world is highly over-rated at best and is in a bubble right now.

So, to return the volley to you, is it diversification or "di-worse-ification" as Buffett would say it?

And btw, on that volatility claim, see:

https://www.bloomberg.com/gadfly/ar...utures-traders-can-quit-pining-for-volatility
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The returns shown are after fees.

Relatively slow trading strategies with positive skew properties, and with an expected SR of say 0.5, will always have long periods of low performance - that's just basic statistics.

And basic portfolio maths says that if an investment has a negative correlation, then a modest allocation will improve the Sharpe Ratio.

GAT
 
globalarbtrader said:
The returns shown are after fees.

Relatively slow trading strategies with positive skew properties, and with an expected SR of say 0.5, will always have long periods of low performance - that's just basic statistics.

And basic portfolio maths says that if an investment has a negative correlation, then a modest allocation will improve the Sharpe Ratio.

GAT
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You did not address the main point here, i.e., it is precisely the low sharpe ratios and low returns that are being called into question... Now if you can show me evidence of funds that have good returns and are uncorrelated to major indices, that's another matter altogether (they are likely closed to the public however or private/unknown).


In this vid above, Kirk says a good fund has a sharpe ratio of 0.8, 0.9, maybe 1. Cantab had a sharpe far lower than that. What say you?
 
Maverick1 said:
You did not address the main point here, i.e., it is precisely the low sharpe ratios and low returns that are being called into question... Now if you can show me evidence of funds that have good returns and are uncorrelated to major indices, that's another matter altogether (they are likely closed to the public however or private/unknown).


In this vid above, Kirk says a good fund has a sharpe ratio of 0.8, 0.9, maybe 1. Cantab had a sharpe far lower than that. What say you?
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Er no the main point is that even if returns are low then it's still worth investing in uncorrelated strategies like CTA's, tail hedge and short biased equities.

As for the point you make, you'd have to ask Ewan what he meant. It's his statement, and his fund.

But if you want my opinion: a good SR depends entirely on the space you're in: holding period, asset class, and strategy. A SR of 1.0 would be appallingly low for a high frequency trader (SR can reach high single digits). It would be amazing for a long only equity manager with a very long horizon (Warren Buffet's SR is around 0.7). It would be astonishingly good for a tail hedge manager (for which you'd expect a modest negative SR).

GAT
 
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