Thursday, May 12, 2016

Drawdown impact and managed futures

A comparison between a simple 60/40 stock bond mix and a managed futures index shows some interesting patterns. Both spend most of their time in drawdowns; however, there are times when there will be diverges in behavior. It is also interesting to note that the stock bond combination max drawdown and the managed futures max drawdown are not that different. A portfolio of managed futures managers does not immediate mean there will be a deeper drawdown versus  simple balanced fund.

The addition of managed futures will cut the size of drawdowns albeit it will be in proportion to the exposure. What may be a surprising development is that the time in drawdowns will be less given the diversification benefit. The comparison with a blended portfolio may be a more realistic way to show the benefits of managed futures.

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