Managed Futures versus Market-Neutral Multi-Factor Investing
And the winner is?
July 2024. Reading Time: 10 Minutes. Author: Nicolas Rabener.
SUMMARY
- Managed futures and market-neutral factor investing offered uncorrelated returns to stocks
- However, these two alternative strategies exhibited similar trends in correlations to equities
- Having exposure to both does not generate superior diversification benefits
INTRODUCTION
At first glance, the universe of alternative strategies is large and full of wonders. However, deeper analysis often reveals different shades of gray rather than the colors of the rainbow.
We previously showed that the returns of private equity are highly correlated to the S&P 500 and similar in magnitude (read Private Equity: The Emperor has No Clothes), venture capital is not very different than investing in a Nasdaq ETF (read Venture Capital: Worth Venturing Into?), multi-strategy hedge funds represent diluted equity exposure (read Multi-Strategy Hedge Funds: Equity in a Different Shade?), and so on (read Myth Busting: Alts’ Uncorrelated Returns Diversify Portfolios).
However, there must be some strategies that are unique and offer uncorrelated returns to traditional asset classes?
Well, yes, take managed futures and market-neutral factor investing for example. These two strategies are uncorrelated to equities and fixed income, at least on average. However, even there investors need to tread carefully as it seems these two strategies are related (read Trend Following & Factor Investing – Unexpected Cousins?).
In this research article, we will contrast managed futures versus market-neutral multi-factor investing for diversifying portfolios.
MANAGED FUTU
