Managed Futures for Institutional Investors: Analysis and Portfolio Construction / Edition 1 available in Hardcover, eBook
Managed Futures for Institutional Investors: Analysis and Portfolio Construction / Edition 1
- ISBN-10:
- 1576603741
- ISBN-13:
- 9781576603741
- Pub. Date:
- 05/03/2011
- Publisher:
- Wiley
Managed Futures for Institutional Investors: Analysis and Portfolio Construction / Edition 1
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Overview
Managed Futures for Institutional Investors is an essential guide that walks you through the important questions that need to be addressed before investing in this asset class and contains helpful direction for investors during the investing process.
Backed by years of institutional experience, the authors reveal the opportunities offered by managed futures. They also include information on practices in the managed futures area and present the various analytical tools and building blocks required to use managed futures effectively. The book also contains insight on the issues that must be addressed when building and evaluating portfolios.
- Shows where to find data to evaluate managed futures and explains how managed futures are regulated
- Offers guidance on how to apply classic portfolio construction tools to managed futures
- Reveals how managed futures investments can help investors evaluate and meet risk, return, and liquidity objectives
Managed Futures for Institutional Investors provides all the practical information to manage this type of investment well.
Product Details
| ISBN-13: | 9781576603741 |
|---|---|
| Publisher: | Wiley |
| Publication date: | 05/03/2011 |
| Series: | Bloomberg Financial , #102 |
| Pages: | 368 |
| Product dimensions: | 6.00(w) x 9.00(h) x 1.40(d) |
About the Author
BRIAN WALLS is the Global Head of Research at Newedge Prime Brokerage, the foremost provider of brokerage services to the managed futures industry. He has worked in the financial services industry for thirty years in the various capacities of trading, operations, management, and research. He was a pioneer of capital introduction services and is a sought after and trusted advisor to many Commodity Trading Advisors, global macro managers, fund of funds and institutional investors. He is the chairman of the Newedge Index Committee.
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Table of Contents
Acknowledgments xiiiIntroduction: Why Invest in CTAs? 1
What Kind of Hedge Fund Is a CTA? 1
Why Do CTAs Make Money? 2
How Much Should You Invest? 7
What About the Risks? 9
They’re a Good Fit for Institutional Investors 10
How the Book Is Structured 11
Part I: A Practical Guide to the Industry
Chapter 1 Understanding Returns 17
Risk and Cash Management 18
Trading, Funding, and Notional Levels 19
The Stability of Return Volatilities 19
Basic Futures Mechanics 20
A Typical Futures Portfolio 27
Chapter 2 Where Are the Data? 41
The CTA Universe and Your Range of Choices 42
The Fluid Composition of a Database 44
How Backfilled Data Can Mislead 46
Trading Programs and Lengths of Track Records 48
Returns Net of Fees and Share Classes 49
Sources of Data for Indexes of CTA Performance 50
Chapter 3 Structuring Your Investment: Frequently Asked Questions 53
How Many Managers Should You Choose? 55
What Are CTA Funds? 58
What Are Multi-CTA Funds? 60
What Are Managed Accounts? 62
What Are Platforms? 66
How Do You Compare and Contrast These Offerings? 66
Who Regulates CTAs? 68
How Are Structured Notes and Total Return Swaps Used by CTA Investors? 69
What Are the Account Opening Procedures for a Managed Account? 69
What Is the Minimum Investment in a CTA? 71
What Does It Mean When a Manager Is Closed? 71
What Are the Subscription Procedures for a Fund? 71
Conclusion 72
Part II: Building Blocks
Chapter 4 How Trend Following Works 75
The Two Basic Strategies 76
Making the Systems Work in Practice 79
Transactions Costs 87
Other Considerations 87
Case Study: Two Models from 1994–2003 89
Rates of Return and Leverage 94
Commodities and Capacity Constraints 94
Market Environment and Give-Backs 97
Chapter 5 Two Benchmarks for Momentum Trading 99
Data and the Trend-Following Sub-Index 101
Trend-Following Models 108
Laying the Groundwork for Analyzing Returns to Trend Following 108
Constructing a Portfolio 110
Simplifying Assumptions 114
How Did the Models Do? 115
The Newedge Trend Indicator 124
Next Steps 124
Chapter 6 The Value of Daily Return Data 129
How Good Are Daily Data? 130
Estimating Return Volatility 138
Distributions of Estimated Volatility 139
Beware a False Sense of Confidence 145
What If Underlying Returns Are Highly Skewed? 146
Effect on Drawdown Distributions 148
Chapter 7 Every Drought Ends in a Rainstorm: Mean Reversion, Momentum, or Serial Independence? 151
A Focus on Conditional Returns 152
The Costs of Being Wrong about Timing Investments Can Be Substantial 152
The Data 153
The Test Tally 155
Test for Serial Dependence: Autocorrelation 156
Test for Serial Dependence: Runs 163
Conditional Return Distributions 165
Conclusion 175
Chapter 8 Understanding Drawdowns 181
Drawdown Defined 182
What Should They Look Like? 183
What Forces Shape the Distributions? 184
The Distribution of All Drawdowns 185
The Distribution of Maximum Drawdowns 187
The Core Drawdown Function 190
Empirical Drawdown Distributions 192
Reconciling Theoretical and Empirical Distributions 192
Putting a Manager’s Experience in Perspective 197
What about Future Drawdowns? 198
Further Questions 199
Chapter 9 How Stock Price Volatility Affects Returns 201
A Look at Historical Returns 202
Stock Price Volatility and Returns on the S&P 500 203
S&P 500 Volatility Dominates Market Volatility 206
CTA Returns, Correlations, and Volatility 210
Conclusion 215
Chapter 10 The Costs of Active Management 217
Forgone Loss Carry-Forward 217
Liquidation and Reinvestment 220
Other Costs 224
Conclusion 225
Chapter 11 Measuring Market Impact and Liquidity 227
A Very Fat Data Set 229
A Representative Market Maker 234
Fitting the Curve to the Data 237
Hidden Liquidity 238
Estimating the Risk-Aversion Parameter 243
Volume, Volatility, and Market Impact Profiles 243
Where Do We Go from Here? 246
Appendix 247
Part III: Portfolio Construction
Chapter 12 Superstars versus Teamwork 253
The Contribution of Low Correlation to Portfolio Performance 255
How Reliable Are Correlation Estimates? 256
The Contest 262
Dropping and Adding Managers 270
The Value of Incremental Knowledge about Return Distributions 275
The Costs of Dropping and Adding Managers 277
Chapter 13 A New Look at Constructing Teamwork Portfolios 279
Why Look Back? 281
A Fresh Look at the Original Research 282
Two New Approaches 287
Comparing the Four Approaches 291
Reviewing the Results 296
Chapter 14 Correlations and Holding Periods: The Research Basis for the Newedge AlternativeEdge Short-Term Traders Index 297
Review of Previous Research 298
Index Methodology and Construction 304
How Low Are the Correlations? 305
Why Are the Correlations Low? 308
Holding Period and Return Correlation 308
Why Are There Not More Short-Term Traders? 313
Replicating the Index 314
Cautions and Managing the Index 316
Conclusion 316
Appendix 316
Chapter 15 “There Are Known Unknowns”: The Drag of Imperfect Estimates 319
Improving Risk-Adjusted Returns 321
Throwing Out the Losers 331
Due Diligence and Evaluation 338
Bibliography 341
About the Authors 343
Index 345