And why is that? --------------------- October 9, 2007 to March 9, 2009 Nasdaq = -54.9% S&P 500 = -56.6% Dow Jones = -53.9% Based on the article, if one use a leverage of 1:2, bought-and-hold, he would get a margin call.
If the trend following system (50-200) were to be adjusted to have the same level of drawdown of buy-and-hold by increasing the leverage, it will definitely outperform the buy-and-hold strategy.
Yes CTA's had a flat spot between 2010 - 2013 (last year was great though), but that wouldn't be unexpected just given statistical noise; I'm not sure it means that TF is broken. Also don't forget Simons said that TF was broken in 1980, not 2010! AFAIK they wouldn't have a big mean reversion component. The main reason being their investors wouldn't like to see any evidence of style drift. Also adaptive allocations are very difficult to get them to work - it's almost impossible to find evidence of predictability for different trading systems. Again I'd be surprised if anyone sensible was doing this, or at least in a big enough way to affect their returns. I'm working on a much longer response to the original article, which I'll post on my blog in due course. GAT (used to work in a large CTA until a couple of years ago)
As promised here is a more detailed rebuttal: http://qoppac.blogspot.co.uk/2015/09/sorry-jim-trend-following-probably.html
WITHOUT MERIT --Leverage is leverage regardless of whether your speaking of futures or cash. The fact remains that a buy and hold trader will get crushed with less than 1 to 1 leverage---it doesn't have to be 2 or 3 to 1.
Index futures are leveraged by default. Take the equity market as an example, which no leverage is being used. A stock trading at $100, if the price depreciate by 50%, you will only lose 50% (assuming that you have invested all your capital in this particular stock).
You can trade futures in such a way that your leverage is 1:1 (i.e. no leverage). It's all about position sizing. For example, if your account is 100k, and you trade a single ES future contract, the risk/reward/leverage would be roughly the same as trading the underlying stock index SPY with entire capital. In fact, you can deleverage your future trading to the point where it's less than 1:1.