Efficient inefficient #13 : Managed Futures

Invest

By Growing your tree of prosperity • October 13, 2017

Today’s article is about managed futures but this strategy is really about trend following. The result of this strategy is very credible, with Sharpe ratios going as high as 1.8. Bershire Hathaway’s supposed ratio is about 0.76 and my usual backtests struggle to hit 0.6. According to the textbook, a diversified trend following trading strategy can return 19.4% with only a volatility of 10.8%.

My primary interest in this strategy is figuring how I can apply these learnings to the build-up of my momentum-based portfolio which would proceed sometime next year. As it turns out, looking at long term trends lasting about 1 year is optimal with weekly rebalancing taking place, but equities provide the lower returns than fixed income and commodities.

If you believe in market efficiency, it would be hard to accept that you can make money from trends, but the return drivers ...

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