By Mark Shore

For decades, investors frequently perceived a traditional portfolio allocation in the range of 60 percent equities and 40 percent bonds for proper diversification. Since 2000 investors, both large and small, have experienced several moments of negative returns to their portfolios. This experience has enlightened many investors to seek wider portfolio diversification in attempts to reduce their correlation risk, tail risk and negative volatility.

As investors search for greater diversification, it begs the question, is there an added value to allocate some portion of a traditional portfolio to a volatility index, such as VSTOXX® Futures? Investors often view each component of their portfolio as a standalone investment. Ultimately asset allocation is about how each portfolio component compliments the entire portfolio. Asset allocation should be viewed as a holistic approach to portfolio management.

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Copyright ©2015 Mark Shore. Contact Mark Shore for permission for republication at [email protected] Mark Shore has more than 25 years of experience in the futures markets and managed futures, publishes research, consults on alternative investments and conducts educational workshops.www.shorecapmgmt.com 

Mark Shore is also an Adjunct Professor at DePaul University’s Kellstadt Graduate School of Business, where he teaches the only known accredited managed futures course in the country. He is also a Board Member of the Arditti Center for Risk Management at DePaul University.

Past performance is not necessarily indicative of future results. There is risk of loss when investing in futures and options. Futures and options can be a volatile and risky investment; only use appropriate risk capital; this investment is not for everyone. The opinions expressed are solely those of the author and are only for educational purposes. Please talk to your financial advisor before making any investment decisions.

CTAExpo LLC Presents:

Chicago CTA Expo 2015

CTA Expo is designed to provide Commodity Trading Advisors and Forex traders the foundation of knowledge they need from both an operational and marketing perspective to raise additional clients, and the opportunity to network with family offices, capital raisers, professional clients and allocators looking to identify trading talent as a source of alpha.

Topics include:

-THE FUTURES INDUSTRY...WHERE WE ARE, WHERE ARE WE GOING

-CRYPTOCURRENCIES...ARE THEY A VIABLE TRADING VEHICLE AND SOURCE OF ALPHA

-THE FAMILY OFFICE MARKET PLACE - STRATEGIES FOR INVESTORS AND MANAGERS

-HITTING IT OUT OF THE PARK...HOW TO CONNECT WITH YOUR FIRST PITCH

-KEYNOTE PANEL - WAR STORIES FROM THE TRENCHES

-INSTITUTIONAL INVESTORS AND WHAT THEY LOOK FOR IN A MANAGER

-PLATFORMS..THEIR SELECTION AND USE FOR MANAGERS AND INVESTORS

-MANAGER OPERATIONAL STRUCTURING AND COMPLIANCE AND THEIR IMPORTANCE IN THE ALLOCATION DECISION

 
Speakers Include:

Bryan Johnson (JOHNSON & CO.)

Frank Pusateri  (CTA Expo LLC)

Bucky Isaacson (CTA Expo LLC)

Gerry Corcoran, CHAIRMAN AND CEO (R.J. O’BRIEN) CHAIRMAN (FUTURES INDUSTRY ASSOCIATION)

Alan Snyder, PRESIDENT (SHINNECOCK CAPITAL)

Todd Horsager (COMPASS STRATEGIC INVESTMENTS)

Lauralouise Duffy, CHIEF EXECUTIVE OFFICER (GLOBAL FUND EXCHANGE GROUP LLC.)
Anthony Birbilis, MANAGING DIRECTOR (COHESION PARTNERS INC.)
Lancelot Frick, PRESIDENT (FRICK CAPITAL),
Tim Pickering, PRESIDENT (AUSPICE CAPITAL ADVISORS, LLC.)

Joan Esposito, FOUNDER (J2 STRATEGIC COMMUNICATIONS.)

Ginger Szala, PRINCIPAL (GINGER SZALA INC)

Emil van Essen, CHIEF EXECUTIVE OFFICER (VAN ESSEN AND ASSOCIATES)
Ted Kingsbery, PRESIDENT (LIBERTY HERITAGE GROUP, LLC.)
Frank Franiak, PRESIDENT (WOODFIELD FUND ADMINISTRATION, LLC.)
MARTY EHRLICH, FOUNDER (SUNRISE CAPITAL PARTNERS, LLC.)

Michael Dubin, MANAGING DIRECTOR (SILVERCREST ASSET MANAGEMENT GROUP, LLC.)

Mark de Souza, CIO (COHESION PARTNERS, INC.)

Dr. Bob Swarup, PRESIDENT (CAMDOR GLOBAL)

David Young, PRESIDENT (GEMINI ALTERNATIVE FUNDS, LLC.)

Mark E. Ruddy, Esq., PRINCIPAL PRINCIPAL (RUDDY LAW OFFICES, PLLC)

John Euler, FOUNDER (EAM COMPLIANCE ADVISORS)
Kate Dressel, PRESIDENT (STRATEGIC COMPLIANCE SOLUTIONS, LLC.)

Date: Thursday, September 17, 2015

Venue: UBS Center, One North Wacker Drive, Chicago, IL

For more information and registration click here

By Mark Shore

Summary

• The focus should not be on Greece, but on the eurozone's ability to solve problems.
• The eurozone has reached a fork in the road for more robust infrastructure for long-term success or risk increased uncertainty of the eurozone.
• If Greece or any nation leaves the eurozone a precedent is set for other member states to do the same, thus increasing the uncertainty of the euro.

Life is filled with uncertainty. Market decisions are frequently made in moments of uncertainty. Europe has experienced its share of uncertainty and volatility in the past decade. This leads to the current situation of Greece that has grabbed a lot of the recent discussions and headlines.   READ MORE

By Mark Shore

Summary
This paper examines seven very popular myths and misconceptions held by both retail and institutional investors regarding managed futures. This paper updates the original version written in 2011. These myths have persisted for several years. As investors are becoming more aware of the potential use of managed futures for asset allocation and portfolio diversification, knowing if the myths are true or false, is critical for an investor’s understanding and appreciation of managed futures.

Decoding the Myths of Managed Futures 2015

From presenting at more panel events, instructing workshops on alternative investments and teaching my managed futures/ global macro course at DePaul University in the last several years, I found it was time to update the original paper written in 2011 with additional myths added to the list.

The demand for alternative investments continues to grow as investors are seeking more ways to decrease their correlation risk and tail risk of their portfolio. After the dot com bubble and the recession in the early 2000s more investors realized the need for wider diversification beyond stocks and bonds. More recently since the financial crisis the demand to reduce correlation risk and tail risk continues to grow.

Managed futures (AKA Commodity Trading Advisors), a subset of alternative investments and sometimes categorized under global macro hedge funds continues to grow in popularity. However, many old myths still persist about the investment product, the managers and the due diligence of the managers.

As of the end of 2014 assets under management have grown by 736% since 2000 and by 53% since 2008, according to BarclayHedge. 2011, 2012 and 2013 were challenging years for the returns of managed futures and the product found itself out of favor. But no one has a crystal ball to know when markets change and the 2nd half 2014 gave CTAs a positive year while equities were experiencing greater volatility in the later part of 2014. As of March 2015, CTAs continue to profit.

A fair amount of the recent growth in managed futures has been driven by the increasing interest for both commodity related investments as well greater non-correlation of portfolio allocations.

Below are some of the myths and misconceptions of managed futures:

1. Mysterious "black box" trading systems
2. Managed futures are a hedge or insurance against equities
3. Only commodities are traded
4. Managed futures are risky and volatile
5. All Commodity Trading Advisors are the same
6. CTA indices contain survivorship bias
7. All CTAs are large firms

The discussions below are tendencies of the managed futures industry. Results may vary with individual managers.

1: Mysterious “Black Box” Trading Systems
Over the years I’ve often heard investors or allocators state “we don’t understand or can’t get comfortable with the systematic trading models” and “they are black boxes, so we stay away from them.” Systematic trading models are quantitative computerized trading models. In earlier years, many CTAs were cautious of fully explaining their models due to replication risk. However in more recent years there is a trend towards CTAs explaining their models. But the transparency by the CTA is not enough. It also involves the investors and allocators to do their research in understanding the concepts and terminology of the asset as they do their due diligence, just as they would for any other investment.

2: Hedge or Insurance against Equities
Many believe that managed futures are a hedge or insurance against equities. This is not true. CTAs tend to be non-correlated to equities. This means their returns are independent of equity returns. The independent returns are primarily due to CTAs trading various commodity and financial markets and they can be long, short, neutral or spreading in those markets.

In the last 20 years managed futures have shown moments of having a positive correlation to equities when equities rally and in other moments a negative correlation to equities when equities decline. Over time the correlation cycles between positive and negative. But they tend to show positive performance when there are “shocks” to the various markets or the economy such as in the early 2000’s and in 2008. A CTA does not care about the direction of the market they trade, but only that there is enough of a move to create a profit.

3: Only Commodities Are Traded
Because the managers who trade futures are called Commodity Trading Advisors (CTAs), there is a myth that only commodities are traded. Some CTAs do trade only commodities or only trade one market or sector such as corn or the grain sector. But many trade only financial futures such as stock index futures, bond futures or currency futures or forwards. Diversified CTAs may trade both financial and commodity futures.

4: Managed Futures Are Volatile
Some CTAs can be volatile, just as any other investment has the potential to be volatile or risky. However, if you look at volatility in terms of the Sharpe ratio and or standard deviation than you are also assuming the return distributions are a normal (bell-curve) distribution. CTAs may have low Sharpe ratios, high standard deviations, thus one would believe they are very risky and volatile. However, the low Sharpe ratio and high standard deviation are often derived from positive skewness of the return distribution due to risk management policies.

One must understand the source of volatility returns. Volatility is similar to cholesterol; there is good volatility and bad volatility. Good volatility is derived from positive returns and the bad volatility derived from negative returns. The Sortino ratio and S-ratio are probably more informative in understanding risk-adjusted returns for a non-normal distribution than the Sharpe ratio or standard deviation.

It may sound counter-intuitive, but adding an investment with high a standard deviation may actually reduce the portfolio’s volatility due to the positive skewness. In doing so to analyze the investment not as a standalone investment, but how does it compliment the portfolio.

5: Managed Futures Funds Are All the Same
Some investors will ask “why do I need to invest in more than one CTA? Aren’t all CTAs the same?” The answer to that is NO! This topic can be detailed in a separate discussion, but they are not all the same for some basic reasons: 1) Some CTAs may trade different markets or varying number of markets. 2) Their time horizons or average trade duration may vary. 3) How they get into or out of positions may vary. 4) How they manage risk, one of the most important components of the trading system may vary among the CTAs. As I tell my students at DePaul University, the risk management of the positions may make or break a manager.

6: CTA Indices Contain Survivorship Bias
Some investors will refrain from investing in managed futures because the indices include survivorship bias. They are correct, the indices usually do contain survivorship bias. This bias relates to managers being taken out of the index because they no longer meet a certain requirement to be in the index or they are no longer in business. Managers may also be taken out of an index because they stop reporting to the databases. One common reason for a manager to stop reporting their returns is if they reach a certain asset size and are no longer seeking to raise funds.

What is often missed is that most investment indices do include survivorship bias. For example, General Electric was one of the original components in the Dow Jones index. They are now the only remaining original constituent. Over the decades DJ and S&P have added and removed companies from their respective indices. If survivorship bias is a reason for an investor to avoid investing in managed futures then why isn’t the same logic applied to equities?

7: All CTAs are Large Firms
Often new investors to the managed futures space may know of a few large CTAs and think all CTAs are large firms with hundreds of millions if not billions of dollars under management, millions spent on technology, a large research staff and a deep infrastructure.

However it is more common for a CTA to be a small business. They will often have from 2 to 10 employees. Using easily accessible technology and many back office functions outsourced to third party firms. This shouldn’t take away from investing in the smaller “emerging” managers, but to understand and appreciate the makeup of the industry.

In summary, we have discussed some of the myths or misconceptions that have persisted over the years regarding managed futures. As the industry has become more transparent of their research and demand for non-correlated assets have increased, there is a need for investors to do their research, understand the product, as they would with any other asset class they explore to invest in and understand the profile of the managers they investigate.




Copyright ©2015 Mark Shore. Contact the author for permission for republication at [email protected] Mark Shore publishes research, consults on alternative investments and conducts educational workshops. His research can be found at www.shorecapmgmt.com Mark Shore is also an Adjunct Professor at DePaul University's Kellstadt Graduate School of Business in Chicago where he teaches a managed futures/ global macro course.

Past performance is not necessarily indicative of future results.  There is risk of loss when investing in futures and options.  Always review a complete CTA disclosure document before investing in any Managed Futures program.  Managed futures can be a volatile and risky investment; only use appropriate risk capital; this investment is not for everyone.  The opinions expressed are solely those of the author and are only for educational purposes. Please talk to your financial advisor before making any investment decisions.

The Professional Risk Managers' International Association (PRMIA) and CME Group Present

Innovations in Commodity Investing

The discussion will cover changing fundamentals for commodity investors such as backwardation and correlation; new ways to access commodity markets such as ETFs, swaps and futures and other emerging trends in the commodity markets.

This event is sponsored by the CME Group and PRMIA in association with CAIA.

Speakers include:  READ MORE

Follow Mark Shore on Twitter, Facebook and Linkedin

Mark Shore has more than 25 years of experience in the futures markets and managed futures, publishes research, consults on alternative investments and conducts educational workshops. www.shorecapmgmt.com 

Mark Shore is also an Adjunct Professor at DePaul University’s Kellstadt Graduate School of Business, where he teaches the only known accredited managed futures course in the country. He is also a Board Member of the Arditti Center for Risk Management at DePaul University.

John J. Lothian & Company Presents

World of Opportunity Summer Intern Education Series Chicago 2014

The first year was very successful with an outstanding lineup of speakers.

This year the series will be held at the Stuart School of Business at the Illinois Institute of Technology. The lineup of speakers features industry experts who will present READ MORE


Follow Mark Shore on Twitter, Facebook and Linkedin

Copyright ©2014 Mark Shore. Contact Mark Shore for permission for republication at [email protected] Mark Shore has more than 25 years of experience in the futures markets and managed futures, publishes research, consults on alternative investments and conducts educational workshops. www.shorecapmgmt.com 

Mark Shore is also an Adjunct Professor at DePaul University’s Kellstadt Graduate School of Business, where he teaches the only known accredited managed futures course in the country. He is also a Board Member of the Arditti Center for Risk Management at DePaul University.

Past performance is not necessarily indicative of future results.  There is risk of loss when investing in futures and options.  Futures and options can be a volatile and risky investment; only use appropriate risk capital; this investment is not for everyone. The opinions expressed are solely those of the author and are only for educational purposes. Please talk to your financial advisor before making any investment decisions.

Skewing Your Diversification Ep 13 with host Mark Shore and guests Matt Thompson and Mike Thompson from Typhon Capital Management July 20, 2014

Topics include: Volatility, VIX Futures, asset allocation, S&P500, options, managed futures, hedge funds, ETNs, ETFs, backwardation, contango, portfolio management, risk management and much, much more

Skewing Your Diversification is a weekly internet show hosted by Mark Shore on www.btfd.tv

The show covers many topics of alternatives with a special focus on managed futures, hedge funds, commodities, currencies and futures. Stay tuned for more episodes and lots of great guests!

For a full list of past and upcoming episodes click here

Follow Mark Shore on Twitter, Facebook and Linkedin

Copyright ©2014 Mark Shore. Contact Mark Shore for permission for republication at [email protected] Mark Shore has more than 25 years of experience in the futures markets and managed futures, publishes research, consults on alternative investments and conducts educational workshops. www.shorecapmgmt.com 

Mark Shore is also an Adjunct Professor at DePaul University’s Kellstadt Graduate School of Business, where he teaches the only known accredited managed futures course in the country. He is also a Board Member of the Arditti Center for Risk Management at DePaul University.

Past performance is not necessarily indicative of future results.  There is risk of loss when investing in futures and options.  Futures and options can be a volatile and risky investment; only use appropriate risk capital; this investment is not for everyone. The opinions expressed are solely those of the author and are only for educational purposes. Please talk to your financial advisor before making any investment decisions.

By Mark Shore

In my last article Four Key Items for an Emerging Manager to Grow Their Business, was a discussion about track records. This article discusses it in more detail.   Investors often ask for at least a three to five year track record. Emerging managers, may ask why do I need to have that long of a track record? There are a few reasons for the length.

1. It shows if there is any consistency to the manager’s trading and environments where they profited and lost.
2. More importantly it gives an investor enough monthly data to calculate various metrics on the trading system to begin a profile of the investment.
3. From an organizational perspective, the longer track record implies the manager has been in business longer and if they are effective at running a business.

Profiling Drawdowns
A very important metric that is sometimes forgotten or less emphasized is the READ MORE


Follow Mark Shore on Twitter, Facebook and Linkedin

Copyright ©2014 Mark Shore. Contact Mark Shore for permission for republication at [email protected] Mark Shore has more than 25 years of experience in the futures markets and managed futures, publishes research, consults on alternative investments and conducts educational workshops. www.shorecapmgmt.com 

Mark Shore is also an Adjunct Professor at DePaul University’s Kellstadt Graduate School of Business, where he teaches the only known accredited managed futures course in the country. He is also a Board Member of the Arditti Center for Risk Management at DePaul University.

Past performance is not necessarily indicative of future results. Only use appropriate risk capital; this investment is not for everyone. The opinions expressed are solely those of the author and are only for educational purposes. Please talk to your financial advisor before making any investment decisions.