Managed Futures for Institutional Investors: Analysis and Portfolio Construction

Cover

Contents

Acknowledgments

Introduction: Why Invest in Ctas?

What Kind of Hedge Fund Is a Cta?

Why Do Ctas Make Money?

How Much Should You Invest?

What About the Risks?

TheyRe a Good Fit for Institutional Investors

How the Book Is Structured

Part I: A Practical Guide To The Industry

Chapter 1 Understanding Returns

Risk and Cash Management

Trading, Funding, and Notional Levels

The Stability of Return Volatilities

Basic Futures Mechanics

A Typical Futures Portfolio

Chapter 2 Where Are the Data?

The Cta Universe and Your Range of Choices

The Fluid Composition of a Database

How Backfilled Data Can Mislead

Trading Programs and Lengths of Track Records

Returns Net of Fees and Share Classes

Sources of Data for Indexes of Cta Performance

Chapter 3 Structuring Your Investment: Frequently Asked Questions

How Many Managers Should You Choose?

What Are Cta Funds?

What Are Multi-Cta Funds?

What Are Managed Accounts?

What Are Platforms?

How Do You Compare and Contrast These Offerings?

Who Regulates Ctas?

How Are Structured Notes and Total Return Swaps Used By Cta Investors?

What Are the Account Opening Procedures for a Managed Account?

What Is the Minimum Investment in a Cta?

What Does It Mean When a Manager Is Closed?

What Are the Subscription Procedures for a Fund?

Conclusion

Part II: Building Blocks

Chapter 4 How Trend Following Works

The Two Basic Strategies

Making the Systems Work in Practice

Transactions Costs

Other Considerations

Case Study: Two Models From 19948211;2003

Rates of Return and Leverage

Commodities and Capacity Constraints

Market Environment and Give-Backs

Chapter 5 Two Benchmarks for Momentum Trading

Data and the Trend-Following Sub-Index

Trend-Following Models

Laying the Groundwork for Analyzing Returns to Trend Following

Constructing a Portfolio

Simplifying Assumptions

How Did the Models Do?

The Newedge Trend Indicator

Next Steps

Chapter 6 The Value of Daily Return Data

How Good Are Daily Data?

Estimating Return Volatility

Distributions of Estimated Volatility

Beware a False Sense of Confidence

What If Underlying Returns Are Highly Skewed?

Effect on Drawdown Distributions

Chapter 7 Every Drought Ends in a Rainstorm: Mean Reversion, Momentum, or Serial Independence?

A Focus on Conditional Returns

The Costs of Being Wrong About Timing Investments Can Be Substantial

The Data

The Test Tally

Test for Serial Dependence: Autocorrelation

Test for Serial Dependence: Runs

Conditional Return Distributions

Conclusion

Chapter 8 Understanding Drawdowns

Drawdown Defined

What Should They Look Like?

What Forces Shape the Distributions?

The Distribution of All Drawdowns

The Distribution of Maximum Drawdowns

The Core Drawdown Function

Empirical Drawdown Distributions

Reconciling Theoretical and Empirical Distributions.