Category: Alternative Investment Strategy

Want to play a “fun” game? Go to Google and type “currency crisis (insert any country name)” and see your results. Luckily for Americans, you will find that the United States is one of the few countries that have avoided this designation so far. As one of my Polish friends who immigrated asked me, “Why […]

I have spent over a decade in the futures industry, so I am accustomed to blank stares when I tell people what I do. Most immediately assume it is too complicated to even try to understand.  The ironic thing is that we all intuitively understand them already. We trade them all the time. We can […]

Market sentiment is a broad term that encompasses the prevailing feeling that investors have about a market.  Measuring this “feeling” can be accomplished in a variety of ways. CNNMoney has a Fear and Greed Index that displays this in a simple format showing when investors are most willing to take on risk or hunker down. […]

Investors are always faced with choices.  My experience tells me that these choices are often driven by simple quirks of human behavior.  Two of these that seem to be big drivers seem to be recency bias and a desire for simplification.  Both of these naturally make us poor investors. For example, in March of 2020 […]

Duncan Coker — Rivercast Capital Management — January 2020 Congratulations! If you are reading this article, you are a survivor! Granted, on some days, nothing seems to go right, but compared to the alternative, life is good. It tends to give us an optimistic outlook, as it should. Optimism is a great thing; without it, […]

Disclaimer While investment in managed futures can help enhance returns and reduce risk, it can also do just the opposite and, in fact result in further losses in a portfolio. In addition, studies conducted on managed futures as a whole may not be indicative of the performance of any individual CTA. The results of studies […]

Investors are always looking for ways to enhance cash returns – higher yield with liquidity and limited principal risk. The timing for using different enhanced cash techniques changes with market conditions. Widening the choice set through investing in alternative risk premia may be a way to meet enhanced cash goals without significantly increasing risk.

Endowments are supposed to be the smart money, yet if you review the recent exhaustive paper on return performance, you will get a different impression. Large endowments do better than small endowments, but when you compare with a simple 60/40 stock bond balanced fund, there is not a lot of alpha generated. See “Investment Returns and […]

A comparison of ARPs across asset classes and styles from the HFR indices shows consistency with the macro environment. We equalized the HFR ARP indices to a ten percent volatility for ease of discussion. April monthly returns are in grey while year to date returns are in red. The returns were generally lower than the market exposures, which were expected. The HFR numbers are averages and have shown significant dispersion. The low correlation across ARPs will create opportunities to improve the return to risk ratios through portfolio blending.

Investment factor growth has exploded to the point that are now close to 400 identified through research published leading finance journals. This factor explosion has been called the factor zoo and it is overcrowded. A careful review of the statistical testing procedures will tell us that it is highly unlikely that all of these identified factors will be true. Many are statistically significant only by chance given multiple testing problems. Additionally, if we impose transaction costs on these factors, their profitability will be diminished and in many cases not useful. 

Investors can form exaggerated expectations on what can be the potential return performance from factors. Some have described a “zoo” of factors. There are now hundreds of factors that have been analyzed and reported in the academic literature. Nevertheless, many have been hard to replicate, show performance return declines after being researched, and have failed when tested out of sample under realistic market conditions. These poor results may be from data mining, not accounting for transaction costs, data mining, poor design, and potential crowding. There are successful factors that have stood the test of time, yet even their performance has been time varying and may be less successful factor after accounting for all costs. Don’t be disappointed if actual returns are less than what is reported in academic studies.