Lintner Revisited: A Quantitative Analysis of Managed ... - CME Group

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EXHIBIT 2: Maximum, Minimum, and Mean Rolling Return of Barclays Capital BTOP 50 Index Over
Different Holding Periods
Source: AlphaMetrix Alternative Investment Advisors, Bloomberg
The conclusion readers should draw from the graph is that the
possibility of making money increases dramatically if the investor
maintains the allocation to managed futures three to five years.
During periods of flat or underperformance, the trend follower
stops out of or exits stale positions and begins to put on new ones
for which the profit expectation is greatest. This often results in a
mean-reversion or “rubber band” effect which manifests itself as
a sudden burst of positive performance after an extended drought
of opportunities during which the program’s money management
system strived to preserve capital. Experienced investors often
choose to add to trend followers in a drawdown in anticipation
of this effect. Likewise, inexperienced or impatient investors all
too often redeem at the bottom of a manager’s drawdown, only to
witness the surge in performance shortly thereafter.
Managers rarely make material changes to their strategies or
models for this same reason, especially during drawdowns, since
this would be tantamount to redeeming in the same way as in the
example. Initial research and testing are critical, however, to ensure
robustness and performance persistence, as are ongoing efforts to
refine the program and ensure it evolves with markets over time.
Evolution and research have always been essential to successful
trend followers, and any perceived “shifts” typically involve
incremental improvements or innovations designed to enhance
the program rather than depart from it materially (Fischer and
Bunge 2007, 2).
8
Past performance is not necessarily indicative of future results.