Our weekly newsletter is out, and once again we have reason to regard hedge funds as a headache. The media usually lumps in managed futures when talking about some of the perceived bad stuff about hedge funds (survivorship bias, high fees, etc.) while failing to distinguish managed futures from hedge funds when it comes to discussing other items like poor crisis period performance, transparency, and liquidity. Managed futures often gets lumped in with the bad â€“ even when it doesn’t apply.
While we missed it when it came out, a book called The Hedge Fund Mirage:The Illusion of Big Money and Why It’s Too Good to Be True, by Simon Lack, appears to be causing some of those guilty association issues between Hedge Funds and Managed Futures. While flying mostly under the radar for the first half of the year, the book has seen some recent interest as the Alternative Investment Management Association, or AIMA, saw fit to weigh in on the author’s assertions, leading to further blog posts and debates around the internet, in turn leading to a few clients of ours calling in asking for our thoughts.
We don’t like to debate things we haven’t read, so we picked up the book. As it turns out, there were a variety of arguments we agreed with and make ourselves on a regular basis (like hedge funds are just risk adjusted stock exposure dressed up as alternatives). A few more were drawn from questionable perspectives, but our biggest bone with the book was its treatment of managed futures â€“ in that there were never any distinctions between the asset class and the rest of its hedge fund brethren
And of course the big talking point of the book is the line most often quoted from it, Lack’s assertion that, “if all the money that’s ever been invested in hedge funds had been in treasury bills, the results would have been twice as good.”
That sure got us thinkingâ€¦ is the same true of managed futures? We tackled the issues one by one to get to the conclusion.
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Forex trading, commodity trading, managed futures, and other alternative investments are complex and carry a risk of substantial losses. As such, they are not suitable for all investors.
The entries on this blog are intended to further subscribers understanding, education, and â€“ at times- enjoyment of the world of alternative investments through managed futures, trading systems, and managed forex. Unless distinctly noted otherwise, the data and graphs included herein are intended to be mere examples and exhibits of the topic discussed, are for educational and illustrative purposes only, and do not represent trading in actual accounts.
The mention of asset class performance is based on the noted source index (i.e. Newedge CTA Index, S&P 500 Index, etc.) , and investors should take care to understand that any index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices: such as survivorship and self reporting biases, and instant history.
Managed Futures Disclaimer:
Past Performance is Not Necessarily Indicative of Future Results. The regulations of the CFTC require that prospective clients of a managed futures program (CTA) receive a disclosure document when they are solicited to enter into an agreement whereby the CTA will direct or guide the client’s commodity interest trading and that certain risk factors be highlighted. The disclosure document contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA.