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

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ABSTRACT:
Managed futures comprise a wide array of liquid, transparent alpha strategies which offer institutional
investors a number of benefits. These include cash efficiency, intuitive risk management, and a
proclivity toward strong performance in market environments that tend to be difficult for other
investments. This paper revisits Dr. John Lintner’s classic 1983 paper, “The Potential Role of Managed
Commodity-Financial Futures Accounts (and/or Funds) in Portfolios of Stocks and Bonds,” which
explored the substantial diversification benefits that accrue when managed futures are added to
institutional portfolios. As Dr. Lintner did, it analyzes the portfolio benefits that managed futures
offer through the mean-variance framework, but it draws on more complete techniques such as the
analysis of omega functions to assess portfolio contribution. The paper also conducts a comparative
qualitative and quantitative analysis of the risk and return opportunities of managed futures relative
to other investments, and includes a discussion as to why managed futures strategies tend to perform
well in conditions that are not conducive to other investment strategies. It provides an overview of
the diversity of investment styles within managed futures, dispelling the commonly held notion that
all CTAs employ trend following strategies. Finally, it highlights the opportunities the space offers
to pension plan sponsors, endowments and foundations seeking to create well-diversified, liquid,
transparent, alpha generating portfolios.
Dedicated to the late Dr. John Lintner