Following the Trend Diversified Managed Futures Trading
by Clenow, Andreas F.Edition: 1st
Format: Hardcover
Pub. Date: 2013-01-14
Publisher(s): Wiley
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Summary
A practical guide to diversified futures trading using CTA fund strategies There are a group of hedge funds which have been showing remarkable performance in the past 30 odd years, consistently outperforming other strategies during bull and bear markets and even showing incredible gains during the 2008 crisis. Written by experienced hedge fund manager Andreas Clenow, this book provides a full and in-depth insight into the strategies behind the funds from someone experienced in managing a CTA fund. It explains the strategies in detail, where the performance is generated and how, and allows the reader full insight into the proprietary strategies which are so closely guarded by the industry. Describes what it takes to invest in the profitable CTA funds Includes examples of large and famous CTA funds Includes a companion website that is continuously updated Following the Trend shows how to trade the CTA funds and includes the math behind their incredible success.
Author Biography
Andreas Clenow CMT, is a principal at ACIES Asset Management with headquarters in Zurich, Switzerland, which he joined after having successfully established his own hedge fund. He specialises in developing and trading quantitative strategies across all asset classes. Prior to his role as a hedge fund trader he had a lightning career with Reuters, where he, as Global Head of Equity and Commodity Quant Modelling, was one of the youngest ever in such a role. He was also the Global Head of Institutional Charting and Technical Analysis for Equis International before departing for the hedge fund world.
Table of Contents
Foreword xi
Preface xiii
Acknowledgements xvii
1 CROSS-ASSET TREND FOLLOWING WITH FUTURES 1
Diversifi ed Trend Following in a Nutshell 2
The Traditional Investment Approach 4
The Case for Diversifi ed Managed Futures 7
Criticism of Trend-Following Strategies 8
Managed Futures as a Business 10
Differences Between Running a Trading Business and Personal Trading 12
Marketability of your strategy 13
Volatility profi le 13
Subscriptions and redemptions 15
Psychological difference 15
2 FUTURES DATA AND TOOLS 17
Futures as an Asset Class 17
Futures exchanges 21
Futures and currency exposure 22
Futures Data 24
Dealing with limited life span 24
Term structure 26
Basis gaps 28
Futures Sectors 30
Agricultural commodities 31
Non-agricultural commodities 33
Currencies 37
Equities 38
Rates 39
Required Tools 42
A word about programming 42
Development environment 42
Data vendors 44
Data storage 44
3 CONSTRUCTING DIVERSIFIED FUTURES
TRADING STRATEGIES 45
They Are All Doing the Same Thing 45
Cracking Open the Magic Trend-Following Black Box 49
Investment universe 52
Position sizing 53
Slippage, commission and other costs 56
Interest on liquidity 56
Strategy personality 56
Anatomy of a trend-following strategy 57
4 TWO BASIC TREND-FOLLOWING STRATEGIES 61
Strategy Performance 63
Correlations between strategies 68
Parameter stability 70
Conclusions from the basic strategies 72
Improving the Strategies 72
Trend fi lter 73
An improved stop loss mechanism 75
Controlling the risk level 80
Parameter stability check 84
A solid foundation for futures trading 86
Core strategy rules 87
5 IN-DEPTH ANALYSIS OF TREND-FOLLOWING
PERFORMANCE 89
Strategy Behaviour 89
As a Complement to an Equity Portfolio 91
Trading Direction 94
Sector Impact 97
Cash Management and the Effect of Free Government Money 101
Putting Leverage into Context 104
6 YEAR BY YEAR REVIEW 109
How to Read this Chapter 110
1990 110
1991 117
1992 122
1993 127
1994 132
1995 138
1996 142
1997 148
1998 153
1999 158
2000 163
2001 168
2002 174
2003 178
2004 184
2005 189
2006 194
2007 200
2008 205
2009 211
2010 216
2011 221
Conclusions of Year by Year Review 227
7 REVERSE ENGINEERING THE COMPETITION 229
Investment Universes 230
Comparing the Investment Universes 234
Replicating Existing Funds 235
Campbell Composite 236
Sunrise Capital Diversifi ed 239
Palm Trend Fund 240
Transtrend Standard Risk Program 242
Mulvaney Capital Management Global Markets Fund 243
More funds 245
Conclusions 248
8 TWEAKS AND IMPROVEMENTS 249
Trading Multiple Time Frames 249
Trading Synthetic Contracts 251
Adding A Counter-Trend Component 252
Intraday Stops 253
Correlation Matrices, Position Sizing and Risk 255
The Rollover Effect 257
Optimisation and its Discontents 258
9 PRACTICALITIES OF FUTURES TRADING 261
Required Asset Base 261
Going Live 262
Execution 263
Cash Management 264
Higher Volatility in Drawdown Mode 266
Portfolio Monitoring 267
Strategy Follow-Up 268
10 FINAL WORDS OF CAUTION 269
Diminishing Returns of Futures Funds 269
Ending Up in the Soup Bowl 271
Setting the Initial Risk Level 272
BIBLIOGRAPHY 275
Offi cial Book Website 275
Research Papers, Articles and Websites 275
Books 276
INDEX 277
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