Category: Alternative Investment Strategy

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Alternative Investment Strategy

Mixed Signal from a Fed Official – A Modernized Taylor Rule Says Stop

Simple assumptions to some classic monetary models will produce very different policy views for the direction of Fed action. These significant policy divergences are the reason for the recent pick-up in bond trading. A dispersion of opinions on Fed action will lead to more volatility, trading, and potential rewards in these markets. 

Alternative Investment Strategy Managed Futures Education

Managed Futures: Portfolio Diversification Opportunities

WHAT ARE MANAGED FUTURES? The term managed futures describes a diverse subset of active hedge fund strategies that trade liquid, transparent, centrally-cleared exchange-traded products, and deep interbank foreign exchange markets. Managers in this sector are called commodity trading advisors (CTAs) and their strategies are largely focused on financial futures markets with additional allocations to energy, […]

Alternative Investment Strategy

Narrative and Price – Know the Line of Causality

With all of the discussion on news, “fake news”, misinformation, and opinion, it is important to focus on some first principles for investing and narrative as news. The narrative is not the facts from an announcement, but the story surrounding the price move coupled with facts. For any investor, it is important to realize that narrative generally follows prices, and prices do not follow narrative.

Alternative Investment Strategy Decision-Making

Judgment and Experience – A Recipe for Success for Any Strategy

Each situation requires a balancing derived from judgment and arising from experience, skills acquired by learning from the past and training for the future.

Alternative Investment Strategy

Focus on the Dislocations – These are the Places of Market Opportunity this Week

There are some recurring themes this week in our highlighted charts, debt and leverage will overhang any global economic discussion; however, we see some interesting dislocations that can offer global macro opportunities:

Alternative Investment Strategy

Managed Futures Hurt by Bond Reversals – Surprises Hurt Major Trend-Followers

Managed futures performance for May was driven by one sector, global bonds. The surprise events in Italian politics led to a flight to quality move into safe bonds around the world. This sharp reversal caught most short trend-follower flat-footed. The commitment of traders reports have shown a strong short tilt in managed money. The size of the move over less than 10 trading-days ensured stops would be hit and positions changed. The question was just how much pain managers took in this sector. Notably, the markets sold-off on the good economic employments numbers to further hurt managers who switched to longs earlier in the week. A similar set of events followed the rates markets. Expectations for fewer Fed hikes given the political turmoil only reversed again after the US employment number.

Alternative Investment Strategy

Monthly Performance Does Not Follow an Expected Return Script – Improvisation in Value, Growth, and Small Cap Indices

One way to measure market uncertainty is to run a simple thought experiment. A well-behaved market should match performance with events in a well-defined manner. An uncertain complex market environment would behave in an ill-defined manner. Close your eyes and assume you have knowledge of the news highlights for the month of May. For example:

Political turmoil in Italy and the EU
Off-again/on-again North Korea talks
Good economic data albeit with lower momentum
EM problems in Turkey and Argentina
Trade war discussions

Alternative Investment Strategy

What Keeps Me Up at Night – “The Glaringly Evident that We Have Decided not to See”

“The hardest thing to explain is the glaringly evident which everybody has decided not to see.” Ayn Rand

Alternative Investment Strategy

You May Not Want to be Bound to an Algorithm – So Use a Dashboard as a Decision Support Tool

The benefits from using algorithms are well documented, yet they are still not used for many decision-making situations. The reasons for this lack of use are varied. It could be self-interest. It could be algorithms anxiety. It could be a lack of confidence in the modeling process. If there is a high level of uncertainty concerning the most effective model, there may be fear of being wrong.

Alternative Investment Strategy Managed Futures

Managed Futures is not Trend-Following but it is Close – Broadening the Product Spectrum has Added Strategy Complexity

I would not be the first person to engage in the lazy thinking that managed futures are synonymous with trend-following. For many years, there was little wrong with using both terms to mean the same thing. The majority of managed futures are still trend-following.

Alternative Investment Strategy

Factor Risk Premium Differ Across Countries – Make Sure You are Factor Diversified Globally

Equity factor risk premium ranks change through time. The best performing factor premium today may not be the best premium tomorrow even if there are long-term gains across major factors. Most investors would agree with this statement; however, the dispersion of factor performance is more complex.

Alternative Investment Strategy

The Tale of the Tail – Focus on the Where, Why, and What is Wrong; Use Strategy Diversification as a Solution

Along with any discussion of asset bubbles, there is a complementary discussion concerning tail risk. If there is a bubble, there is likely to be a tail in the future. Bubbles and tails are tied together, yet tail events can occur even if there is no bubble.

Alternative Investment Strategy

Time Series or Cross Sectional Momentum – Which is Better? Your Choice May Matter

The marketplace is abuzz with the value of momentum trading, but a closer inspection shows that it is packaged in two major strains, time series and cross-sectional momentum. The traditional trend-following CTA focuses on time series momentum while the most of the equity research and implementation is conducted through the cross-sectional approach. There is similarity between these approaches, but there are also enough differences so that the return profile for each will not be the same. 

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