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

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Exhibit 12, “BTOP 50 vs. HFRI Fund Weighted Composite Index’s
Worst Five Drawdowns Since 1990,” provides an additional
perspective as before. Once again it seems that the performance of
managed futures complements other actively managed strategies
during periods of market dislocation or duress.
While managed futures have proven to be a great diversifier
during equity drawdowns, it is incorrect to assume that they are
necessarily a pure hedge for equities. It is true that good trendfollowers
are supposed to catch trends, so during a prolonged bear
market, a good trend-following program should be able to generate
returns. However, that does not mean that if there is a quick and
sudden drop in the equity market, that a trend-following CTA will
necessarily be positive. As stated earlier, the universe of managed
futures is diverse, with many different types of trading strategies –
not just trend followers.
Short-term traders are usually engineered to perform better during
a higher volatility regime, although of a different type than that
which is conducive to trend following. Volatility describes only the
dispersion of changes in price around the mean, not the manner in
which they unfold. Proper, rigorous due diligence always needs to be
conducted, but there are many excellent CTAs of various strategies
that should do well on a risk-adjusted basis over the long-run.
It is also essential to highlight the fact that certain dislocations
or events may produce market environments which are difficult
for most hedge fund strategies, including certain managed
futures strategies. The diversity within and the lack of correlation
among alternative investments, and within and among managed
futures in particular, suggests that it is highly likely that at least
a few alternative strategies will outperform during any given
environment. Again, it may be helpful to think of different
alternative investments and market environments in terms of the
radio signal and receiver analogy.
EXHIBIT 12: BTOP 50 vs. HFRI Fund Weighted Index’s Worst Five Drawdowns since 1990
Source: AlphaMetrix Alternative Investment Advisors, Bloomberg
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Past performance is not necessarily indicative of future results.