No doubt, the pitching of managed funds as "diversification" is the trend (pun intended) du jour. But this, to me, is smoke and mirrors: of what benefit is a -0.01 correlation to the S&P (Cantab) when the fund has basically made ZERO money in the last 4 years, all the while charging 20% and 1% and then 10% and 0.5% for its services? Taking into account the fees, whoever took comfort in being "diversified" with Cantab in the last 4 years actually lost money. 4 years is not a trivial period of time. The fact that Cantab sold itself to another firm seems to strongly support a skeptical view of the industry at large, wouldn't you say, given the pedigree: ex Goldman Sachs head of quant division, astrophysicist etc. If the rocket scientists can't make any money over 4 years, it's hardly encouraging. I think the quant world is highly over-rated at best and is in a bubble right now. So, to return the volley to you, is it diversification or "di-worse-ification" as Buffett would say it? And btw, on that volatility claim, see: https://www.bloomberg.com/gadfly/ar...utures-traders-can-quit-pining-for-volatility
It really is a valid question. And even more so for hedge funds. Most funds are not impressive. I've offered to help, even offered to buy their firms, to no avail.
It may have been whitepapered for decades, but no one can deny that there's been a recent growing trend, like never before, towards advocating investing in managed futures for "low correlation" benefits regardless of absolute returns... Everybody and their grandma is saying "look here, no returns, but hey we's got low correlation!"
The returns shown are after fees. Relatively slow trading strategies with positive skew properties, and with an expected SR of say 0.5, will always have long periods of low performance - that's just basic statistics. And basic portfolio maths says that if an investment has a negative correlation, then a modest allocation will improve the Sharpe Ratio. GAT
You did not address the main point here, i.e., it is precisely the low sharpe ratios and low returns that are being called into question... Now if you can show me evidence of funds that have good returns and are uncorrelated to major indices, that's another matter altogether (they are likely closed to the public however or private/unknown). In this vid above, Kirk says a good fund has a sharpe ratio of 0.8, 0.9, maybe 1. Cantab had a sharpe far lower than that. What say you?
Er no the main point is that even if returns are low then it's still worth investing in uncorrelated strategies like CTA's, tail hedge and short biased equities. As for the point you make, you'd have to ask Ewan what he meant. It's his statement, and his fund. But if you want my opinion: a good SR depends entirely on the space you're in: holding period, asset class, and strategy. A SR of 1.0 would be appallingly low for a high frequency trader (SR can reach high single digits). It would be amazing for a long only equity manager with a very long horizon (Warren Buffet's SR is around 0.7). It would be astonishingly good for a tail hedge manager (for which you'd expect a modest negative SR). GAT