A Quantitative Analysis of Managed Futures Strategies
From the CME Group FULL PAPER

Managed futures comprise a wide array of liquid, transparent active 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 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.

Managed Futures Correlation Chart (1980-2016)