Managed Futures - Hedge Fund Strategies


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A brief overview of a hedge fund strategy used in alternative investment markets.

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Managed Futures - Hedge Fund Strategies

  1. 1. Hedge Fund Strategies Managed futures
  2. 2. Managed futures Index: 1. Definition 2. Advantages 3. CTA evaluation 3.1. Trading Program 3.2. Annualized Rate of Return 3.3. Risk-Adjusted Return
  3. 3. 1. Definition Managed futures: are used futures contracts by investors as part of their overall investment strategy. Among various types of asset classes and investment styles to help mitigate portfolio risk in a way that is not possible in direct equity investments, providing portfolio diversification. (Investopedia, 2011)
  4. 4. 1. Definition Commodity Trading Advisors (CTAs): are the managers in this sector, because most CTA activity was in commodities. Currently, they are largely focused on financial futures markets — fixed income, equity indices, and foreign exchange — with additional allocations to metals, energy and agricultural markets. (CME Group, 2011)
  5. 5. 2. Advantages The addition of uncorrelated variance may have a beneficial effect on other performance and risk metrics, so tend to reduce portfolio variance; Mitigate many of the risks associated with model risk because the exchange-listed underlying instruments used by CTAs; Flexibility and cash efficiency because the use of margining process. (CME Group, 2011)
  6. 6. 3. CTA evaluation Before investing should be make some important assessments, and found information in the CTA's disclosure document (trading plan and fees) (CME Group, 2011)
  7. 7. 3.1. Trading Program Two types of trading programs: - Trend followers: they have signals of when to go long or short in certain futures markets, through technical or fundamental trading systems (or a combination of them); - Market-neutral: investors tend to profit, in the same market, from spreading different commodity markets or different futures contracts. Also, there are the options-premium sellers who use delta-neutral programs. (CME Group, 2011)
  8. 8. 3.2. Annualized Rate of Return Is always required to be presented as net of fees and trading costs. These performance numbers are provided in the disclosure document, where, no later than every nine months, CTAs must update their disclosure document; (CME Group, 2011)
  9. 9. 3.3. Risk-Adjusted Return It’s important to get more formal about assessing risk, and the Return on a risk-adjusted basis is the most important measure to be compared. (CME Group, 2011)
  10. 10. References CME Group, 2011, ‘Frequently Asked Questions About Managed Futures’, Brochure, trademark of Chicago Mercantile Exchange Inc Investopedia, 2011, ‘An Introduction To Managed Futures’ viewed 3 August 2013, from 05/070605.asp