First Understand Managed Futures From the Standpoint of Macro Market Environments and Beta Performance Drivers

Although it has not been written about nor formally discussed in public forums, understanding a managed futures investment from the standpoint of market environments and macro performance drivers first solves many problems for asset managers.

· It enables a quick description of the investment to provide the investor and understanding of how beta performance is generated

· Allows the asset manager to establish logical performance expectations in two sentences

· Sets up further structural analysis with performance measures relative to the strategy

· It enables logical strategic correlation consideration

How Beta Performance Drivers Work

Each of the primary managed futures strategies have an environment in which they are expected to find success and relative failure.

For instance, several strategies are based on the market environment of price persistence.  These include trend following, breakout, momentum among the many similar named strategies.

Other strategies are based on the market environment of relative price divergence and then convergence back to a statistical mean.  These include relative value, arbitrage and strategies based on how pricing of one asset relates to a related asset.

Strategies based on the market environment of volatility utilize options and have a different set of considerations depending on the specific strategy type.

Describing The Investment

The first step in the analysis process is to identify this beta performance factor, which leads to an understanding of performance generation factors and can assist in setting expectations.  Using the market environment performance driver, an asset manager may describe the investment as such:

“This trend following program has a macro performance driver of price persistence.  It is expected to prosper when the price of a given asset moves in one consistent direction.”

In two sentences, the investor can set macro performance expectations when the investment should and should not work, as well as provide the core strategic logic as to why the investment is so uncorrelated to that of the stock market.

Performance Measures Relative to Strategy

Another reason to understand the performance driver concept is that the performance measures should be relative to each strategy.  For instance, trade time frame might be given a different weighting in a trend following program than certain volatility programs.  Expected margin to equity usage, win percentage and correlation to the equity markets during times of crisis are all examples of performance measures with relative significance to each strategy.

The important takeaway is with each performance driver, the relative alpha strategy considerations of the managers can vary.  Thus starting at the high level and working downward is most appropriate.

Mark Melin is author of three books, including High Performance Managed Futures, taught a course for Northwestern University’s executive education program and edits the web  Entire contents Copyright (C) Mark Melin 2013

DISCLOSURE: These are the opinions of the author and may not have considered all risk factors. Nothing on this web site should be construed as an individual recommendation, talk to your independent advisor. The author and Opalesque may have relationships with those people they cover in the publication. Mr. Melin provides a full disclosure of his business relationships to regulators and certain eligible participants who engage him in consulting projects. Managed futures investing involves risk and there are no guarantees of safety or future performance being implied. Managed futures can be a risky investment. This web site and its content is subject to the terms of the web site. Risk Disclosure and terms of web site are available here: Performance information received on this site is provided by third parties and deemed reliable but there is no guarantee relative to same. Performance reporting sources and quality assurance techniques may include, but are not limited to: disclosure document, CTA self reporting, brokerage firm reporting, consultant reporting, spot checking other reporting databases; nonetheless no guarantee of accuracy or implication performance verification or auditing is being made by the publishers. The CTA Database is a project separately managed from

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