Flirting with Models Andrew Beer & Adam Butler - Attack of the Managed Futures Clones
Sep 25, 2023
Andrew Beer from DBi and Adam Butler from ReSolve Asset Management discuss the replication of managed futures strategies. They explore return-based and process-based replication, selecting markets for diversification, and the challenges of derisking and top-down investing. They also discuss the implementation process for replicating an index and achieving broad-based exposure to the hedge fund industry. Overall, they highlight the potential benefits and cost-effectiveness of replication in investment portfolios.
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Span The Four Major Sectors
- Ensure diversification across the four major sectors: equities, rates, commodities, and currencies.
- Avoid concentrating too many factors within a single asset class to preserve replication robustness.
Limit Universe To Liquid, Historical Contracts
- Cull markets that lack long, liquid history before building replication models.
- Focus on futures with sufficient history and liquidity to ensure meaningful backtests.
Statistical Limits On Top-Down Universes
- Regression-based top-down replication is limited by sample size and covariance estimation.
- You can't reliably regress too many markets on short lookback windows without statistical issues.